Debt tsunami surges toward Washington
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.