Debt tsunami surges to­ward Wash­ing­ton

The Washington Times Weekly - - Commentary -

All the talk in Wash­ing­ton is about the slow­ing econ­omy, the threat of an­other re­ces­sion, the gov­ern­ment’s grow­ing debts and the loom­ing in­sol­vency of So­cial Se­cu­rity and Medi­care.

If any­one still be­lieves things can’t get much worse, brace your­self. They can, and they will.

A re­cent Gallup Poll found that nearly 80 per­cent of Amer­i­cans they polled be­tween June 9 and 12 were “dis­sat­is­fied with the nation’s direc­tion.”

Not sur­pris­ingly, their deep­en­ing dis­sat­is­fac­tion mir­rors a 10-point plunge in Gallup’s eco­nomic-con­fi­dence in­dex.

Don’t look to the White House and Pres­i­dent Obama for a plan to get our coun­try out of this mess.

In the past few months, many of his top eco­nomic ad­vis­ers have left their jobs and re­turned to the safety of their tenured teach­ing posts in academia.

Free from the tightly con­trolled po­lit­i­cal con­straints of the West Wing, Lawrence H. Sum­mers, who headed the pres­i­dent’s Na­tional Eco­nomic Coun­cil, urged his for­mer boss two weeks ago to in­crease pay­roll-tax cuts for all work­ers from 2 per­cent to 3 per­cent and ex­pand it to in­clude each em­ployer’s match­ing tax share.

In a re­cent anal­y­sis for Reuters, ti­tled “the Jobs Cri­sis,” a newly crit­i­cal Mr. Sum­mers said:

“The frac­tion of the pop­u­la­tion work­ing re­mains al­most ex­actly at its re­ces­sion trough and re­cent re­ports sug­gest that growth is slow­ing.”

“Be­yond the lack of jobs and in­comes, an econ­omy pro­duc­ing be­low its po­ten­tial for a pro­longed in­ter­val sac­ri­fices its fu­ture. To an ex­tent that once would have been unimag­in­able, new col­lege grad­u­ates are this month mov­ing back in with their par­ents be­cause they have no job or means of sup­port.

“And re­duced in­comes and tax col­lec­tions at present and in the fu­ture are the most im­por­tant cause of un­ac­cept­able bud­get deficits at present and in the fu­ture.”

Mr. Obama has no full-blown eco­nomic-growth plan in the works to get the econ­omy mov­ing again — be­yond hop­ing it will turn around on its own — with­out any new stim­u­lus that Mr. Sum­mers says is needed to pull the coun­try out of its re­newed slump.

Mean­time, with the U.S. Trea­sury de­scend­ing deeper into debt — a whop­ping $1.6 tril­lion in this fis­cal year alone — the ad­min­is­tra­tion has just six weeks to strike a deal with Congress to cut more than $2 tril­lion in spend­ing over the next 10 years.

That’s the amount Trea­sury Sec­re­tary Ti­mothy F. Gei­th­ner says the rev­enue-sapped gov­ern­ment must bor­row to pay its bills.

But to do so, Congress must raise the $14.3 tril­lion debt ceil­ing by the same amount. House Speaker John A. Boehner, Ohio Repub­li­can, says it’s no deal un­less the White House agrees to $2 tril­lion in cuts and, pos­si­bly, a great deal more.

To say that both sides are run­ning out of time is putting it mildly, be­cause the House and Se­nate will be on a sum­mer break for at least three weeks over this pe­riod.

Such is the lethargy of Congress in what is turn­ing into a po­lit­i­cal game of chicken.

By far the largest hur­dle in these ne­go­ti­a­tions is en­ti­tle­ments, which rep­re­sent the bulk of the fed­eral gov­ern­ment’s fu­ture fi­nan­cial li­a­bil­i­ties. Medi­care’s trust fund fi­nances are ex­pected to be­gin dry­ing up in 2024, and So­cial Se­cu­rity will be in­sol­vent by 2036.

It will be im­pos­si­ble to come up with a so­lu­tion to ei­ther pro­gram’s fi­nan­cial cri­sis within the com­ing weeks. More likely, any bud­get deal will set broad, new ex­pen­di­ture and rev­enue tar­gets for Congress to reach based on ben­e­fit, age-el­i­gi­bil­ity and other struc­tural re­forms.

To save So­cial Se­cu­rity, Congress would be wise to re­visit the late Sen. Daniel Pa­trick Moyni­han’s plan to let younger work­ers in­vest a frac­tion of their pay­roll taxes in a broadly di­ver­si­fied stock and bond re­tire­ment fund they would own.

AARP, the se­nior cit­i­zens lobby, dem­a­gogued Moyni­han’s plan to death in 2005, charg­ing that any long-term in­vest­ments in stocks was a “risky scheme” that would kill So­cial Se­cu­rity. Soon af­ter the plan — cham­pi­oned by Pres­i­dent Ge­orge W. Bush — was de­clared dead, AARP said it was go­ing into the mu­tual fund busi­ness.

Now, with So­cial Se­cu­rity fac­ing bank­ruptcy, AARP says it’s will­ing to sup­port needed cuts in the re­tire­ment pro­gram.

“We are open to talk­ing about dif­fer­ent op­tions to strengthen So­cial Se­cu­rity for the long term,” in­clud­ing “changes on the ben­e­fit side,” David Cert­ner, AARP’s leg­isla­tive di­rec­tor, told Bloomberg News.

Mean­time, the econ­omy re­mains weak, un­em­ploy­ment is stuck above 9 per­cent na­tion­ally, and that has plunged fed­eral tax rev­enues, which are driv­ing deficits up to record lev­els.

Half­way through the third year of his pres­i­dency, Mr. Obama is try­ing to shed his lib­eral, big-spend­ing im­age with cam­paign gim­micks.

This month, he signed an ex­ec­u­tive or­der to cre­ate the “Cam­paign To Cut Gov­ern­ment Waste.”

He’s three years late and more than $3 tril­lion short.

Two weeks ago, his chief of staff, Wil­liam M. Da­ley, met with lead­ing man­u­fac­tur­ing ex­ec­u­tives to talk about cut­ting job-killing reg­u­la­tions.

The CEOs were not im­pressed.

“We think there’s a thin facade by the ad­min­is­tra­tion to say the right things, but they don’t come close to do­ing things,” said Bar­ney T. Bishop III, chief ex­ec­u­tive of the Associated In­dus­tries of Florida. “We love the plat­i­tudes, but we want to see ac­tion.”

Don­ald Lam­bro is a syn­di­cated colum­nist and for­mer chief po­lit­i­cal cor­re­spon­dent for The Wash­ing­ton Times.

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