An ur­gent fix needed now

The Star Democrat - - OPINION - LEE HAMIL­TON Lee Hamil­ton is di­rec­tor of the Cen­ter on Con­gress at In­di­ana Univer­sity, dis­tin­guished scholar, IU School of Global and In­ter­na­tional Stud­ies and pro­fes­sor of prac­tice, IU School of Pub­lic and En­vi­ron­men­tal Af­fairs. He was a mem­ber of the U

Amer­i­cans un­der­stand that our na­tion’s strength and se­cu­rity de­pend on its fis­cal health. This may not be fore­most on their minds right now, but rarely do I ad­dress a pub­lic meet­ing at which no one ex­presses con­cern about the fed­eral debt and our gen­eral fis­cal con­di­tion. We face an on­go­ing, long-term mis­match be­tween our spend­ing and rev­enues, and year af­ter year, ad­min­is­tra­tion af­ter ad­min­is­tra­tion, the debt grows larger.

A lot of or­di­nary peo­ple worry about this. They be­lieve that a healthy fis­cal sit­u­a­tion is es­sen­tial to our suc­cess as a na­tion. And they want poli­cies in place that al­low us to ad­dress the debt without in­ter­fer­ing with the eco­nomic well-be­ing of the coun­try.

But the pres­i­den­tial can­di­dates aren’t giv­ing se­ri­ous at­ten­tion to deficit re­duc­tion, and nei­ther, for the most part, are mem­bers of Con­gress. This may be be­cause the fed­eral deficit — that is, the yearly dif­fer­ence be­tween rev­enues and ex­pen­di­tures — has shrunk. But that’s only tem­po­rary, a respite from the deficit highs we in­curred dur­ing the re­ces­sion. With a ris­ing pro­por­tion of older peo­ple and spend­ing on en­ti­tle­ment pro­grams such as So­cial Se­cu­rity, Med­i­caid and Medi­care grow­ing dra­mat­i­cally, we’re not far away from fac­ing dan­ger­ous lev­els of debt. A fix is be­com­ing in­creas­ingly ur­gent, and the longer we de­lay the more dif­fi­cult it will be.

So what do we do? The so­lu­tions flow along three broad lines: spend­ing cuts, tax in­creases, and eco­nomic growth. There are ad­vo­cates for each, but it is hard to imag­ine that sal­va­tion lies in one ap­proach alone.

Pro­pos­als to slash the deficit by cut­ting spend­ing fall far short of what is needed. In­deed, our ex­pe­ri­ence in the re­cent past of­fers no hope that politi­cians will find agree­ment on sig­nif­i­cant spend­ing cuts. A sim­i­lar is­sue con­fronts those who be­lieve that we just need to un­leash the forces of the mar­ket to pro­pel eco­nomic growth — to make progress, we would need to see a growth rate far above any­thing we have a rea­son­able chance to reach and sus­tain. And al­though there may be politi­cians who qui­etly wish we could tax our way out of the deficit cri­sis, there is no po­lit­i­cal ap­petite for it.

In short, we need them all: a com­bi­na­tion of tax in­creases, spend­ing cuts in both de­fense and non-de­fense ar­eas, and eco­nomic growth that will sta­bi­lize debt at a man­age­able level.

Each is dif­fi­cult. Capi­tol Hill’s pre­ferred tac­tic when it comes to taxes is to cut them, not in­crease them. The tax code is larded with tax “ex­pen­di­tures” — that is, the mess of pref­er­ences, loop­holes, and tax breaks aimed at solv­ing so­cial prob­lems or but­tress­ing one in­dus­try or an­other. These are po­lit­i­cally at­trac­tive be­cause they don’t cre­ate ad­di­tional spend­ing, but the bud­getary im­pact is the same: they re­duce rev­enues and ex­pand the deficit. In that at­mos­phere, ac­tual tax in­creases — the kind that would help us get our debt un­der con­trol — can seem re­mote.

On the spend­ing side, the rhetoric com­ing from Wash­ing­ton — and out on the cam­paign trail — raises un­re­al­is­tic ex­pec­ta­tions about the sav­ings that can be achieved through bud­get cuts. Not only do most pro­pos­als fall far short of what is needed, but the de­mands we face on en­ti­tle­ment pro­grams, the coun­try’s ev­i­dent need for pub­lic in­vest­ment — es­pe­cially in in­fra­struc­ture — and higher in­ter­est rates on the debt are all pow­er­ful forces push­ing in the op­po­site di­rec­tion.

But re­ally, what choice do we have? The three­p­ronged so­lu­tion I’ve out­lined — a com­bi­na­tion of spend­ing re­straint, tax in­creases, and eco­nomic growth — is pri­vately ac­knowl­edged by al­most ev­ery­one I’ve en­coun­tered, what­ever their pub­lic po­si­tion, to be the only re­al­is­tic ap­proach. Yes, this kind of deal will have to be phased in over years, giv­ing peo­ple and busi­nesses time to ad­just. But the ur­gency of the question is press­ing and will only get greater as deficits go up. The longer we de­lay, the more painful the ad­just­ment will be.

Our sys­tem has met greater chal­lenges in the past. We’ve been through a civil war, two world wars, waves of im­mi­gra­tion un­seen by any other na­tion, and we’ve man­aged them all. It took strong po­lit­i­cal lead­er­ship, bi­par­ti­san­ship, ne­go­ti­a­tion, and com­pro­mise to thread our way through. That’s what get­ting our debt un­der con­trol will re­quire. We’d bet­ter get started.

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