“The fiscal consolidation plan … falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.” S&P, August 5
When President Obama finally signed legislation to increase the federal debt ceiling on August 2, many in Washington, D.C. may have breathed a sigh of relief that a potentially devastating default crisis had been averted. Unfortunately, our nation’s fiscal woes haven’t been resolved — as reflected in the S&P’s opinion above. In fact, this is just the first step in what must be an ongoing campaign to clamp down on government overspending.
They called it the “Budget Control Act of 2011,” but that title represents wishful thinking and not reality. The federal budget deficit is estimated to stand at $1.4 trillion this year, while the national debt is more than $14.5 trillion, a number that is growing rapidly, even with the proposed savings in the debt ceiling compromise.
On August 5, three days after the president signed the debt package, the credit rating agency Standard & Poor’s downgraded the U.S. credit rating for the first time in history, setting off another round of unconstructive partisan recriminations. The S&P sent a clear message: What has been done is not enough. Rather than pointing fingers, Washington leaders should get the message: The United States simply has too many liabilities on its ledger, and if we’re going to seriously address the country’s fiscal health, we have to enact significant spending reforms. S&P’s move on the credit rating was, in part, a signal that the debt package was inadequate to the task at hand.
Let’s consider a few of the facts about the final compromise the president signed:
◆ The compromise allows for up to $2.4 trillion in additional debt. In about a year and a half, we will hit the ceiling again.
◆ Spending caps on discretionary spending (which represented nearly 39 percent of all federal spending in 2010) will save an estimated $917 billion over the next 10 years, according to the Congressional Budget Office. That’s a drop in the bucket of federal spending.
◆ The compromise fails to deal with runaway entitlement spending for Social Security, Medicare and Medicaid, though these are among the most rapidly growing parts of the federal budget. (Medicare is expected to go bankrupt in just nine years, and the looming retirement of the massive baby boomer generation is only going to place a heavier strain on our retirement security systems.)
◆ The compromise creates a special Joint Committee in Congress to develop additional spending reduction plans — essentially kicking the can a little further down the road rather than dealing with the need to cut spending outright.
While the Budget Control Act did manage to delay the threat of default and bring some modest fiscal restraint to bear on the federal budget, it’s just a start. “We’re no longer running toward oblivion; we’re walking toward it,” Sen. Lindsey Graham (R-SC) said of the compromise on ABC’s “This Week.” “And now we need to stop and turn around, go back the other way.”
That’s exactly right. The organization I head, Public Notice, has been a leading voice about the need to bring real budget reform to the table. That means not only addressing the low-hanging fruit of earmarks and pork-barrel spending, but also the tougher reforms to be made in defense spending, Social Security, Medicare and Medicaid. Unfortunately, this bill didn’t directly take on any of those sacred cows.
But let’s look for the silver lining, because while the debt ceiling debate was frustrating, it also gives reason to be encouraged. Perhaps most importantly, the debate served to shine a bright light on our nation’s fiscal reality. American taxpayers, who previously might not have given a lot of thought to the level of federal debt, were mortified to learn that some in Washington apparently believe we can increase the nation’s credit card limit indefinitely, without facing any consequences.
But taxpayers know that there are consequences from too much debt and deficit spending. Higher taxes, anemic economic growth and high rates of unemployment are what the debt and deficits have wrought. Americans are wisely saying, “Enough.”
So don’t think of the debt ceiling compromise as the end of the debate; in fact, it’s just the beginning. Over the next several months, and leading up to the 2012 elections, we’re going to face many more such debates over government spending, taxation and the direction of our nation. I’m looking forward to those debates. Let’s take this opportunity to draw that line in the sand and let our elected officials know that it’s time to get our financial house in order.
Gretchen Hamel is Executive Director of Public Notice, an independent, nonpartisan, non-profit dedicated to providing facts and insight on the economy and how government policy affects Americans’ financial well being.