Keys to solving the federal debt crisis
As we inch ever closer to the fiscal cliff — the package of sweeping tax increases and spending cuts waiting at the new year if Congress and the president fail to act — we encourage all Americans to remember that our current debt crisis is not a complicated matter.
It is simply the product of two equally corrosive trends: a federal government that spends to excess and an economy whose continued listlessness results in lower tax revenue for Washington. Any proposed solution that doesn’t address both of those issues won’t be worth the paper it’s written on.
The problem with the spending cuts set to take place under the fiscal cliff isn’t their severity. In fact, with the feds doling out over $3.5 trillion this year, the $109 billion that would come out of 2013 spending strikes us a relatively paltry sum. What is problematic, however, is the arbitrary way those cuts are applied.
We agree with Defense Secretary Leon Panetta that taking roughly half of the proposed reductions from defense — surely the paramount responsibility of the federal government — is an exercise in irresponsibility. Leaving the military less capable of projecting power at a time when tensions are running high in North Africa, the Middle East and Asia is the worst of the many bad ideas circulating around Washington right now.
That’s not to suggest that the Pentagon receive immunity from belt-tightening, however. The Armed Services have a notoriously wasteful, inefficient and costly procurement process. Moreover, the Defense Department’s spending on matters not directly related to national security is frequently exorbitant. A recent report from the office of Oklahoma Republican Sen. Tom Coburn, for instance, estimates that we could save $6 billion alone just by eliminating Pentagon research & development programs that have little or nothing to do with defense.
To uncover real savings, however, Washington has to rein in the costs of Social Security, Medicare and Medicaid, which between them already account for 42 percent of federal spending — a figure that’s projected to swell to nearly 62 percent in the next two decades.
While we’d like to see these programs seriously recalibrated along market-based lines, we recognize that political realities will probably only allow incremental change. Still, even minor adjustments, like raising the retirement age or introducing modest means-testing, will get us closer to fiscal sanity than we are today.
In addition to serious spending cuts, digging out from underneath our $16 trillion debt burden also requires consistent economic growth. Because virtually all tax increases act to suppress economic activity, we thus find the president’s proposal to hike taxes on high earners counterproductive. The logic of the recent election, however, dictates that the president will likely get his way. There may be some virtue in that if the American people are forced to realize more of the costs of the expansive government for which they voted.
Lawmakers, however, would be wise to use the opportunity to spur economic growth elsewhere. A cut in the nation’s corporate tax rate, which, at 35 percent, is the highest in the world and a drag on our ability to compete in a global economy, would be a good start. Some austerity, after all, will be necessary to address the current crisis. Only when paired with renewed economic growth, however, will it become sufficient.