The debt ceiling deal is only hours old, and it will be some time before the winners become clear (though I wouldn’t be surprised to see Barack Obama at the top of the list on November 7, 2012). But it’s very clear that the losers are the American people.
Pundits and politicians are telling us that the crisis is over, that our financial system is no longer in danger. That might be true in the very near term, but so was Chamberlain’s declaration of peace in our time.
The debt deal avoids the immediate catastrophe of a default. But it also accelerates the even bigger catastrophe of a future when the United States cannot borrow money, cannot maintain programs like Social Security and Medicare, and when massive unemployment could lead to another Great Depression. And that is not hyperbole.
Most Americans will see that a deal was reached and think our problems have been solved — that the country can return to business as usual. But our problems haven’t been solved. They are growing worse, and this deal won’t solve them.
All of the headlines focus on the specifics of the deal and the partisan fighting between Democrats and Republicans. But the real headline is this: The United States just voted to borrow more than $2 trillion — and that will ONLY be good enough to get us through 2012.
It took 80 years (1917-1986) for the debt limit to reach $2 trillion. And now we’re being told it’s an achievement that $2 trillion in borrowed money can finance our government’s obligations for less than 2 years.
The spending cuts in this deal are praiseworthy. But they are not the kind of structural reforms that can actually solve our financial problems. If these cuts were kept in place for the rest of eternity, we’d still need to endlessly borrow trillions of dollars to pay for programs like Medicare, Medicaid and Social Security.
Eventually, investors will realize that we will never be able to repay this debt, and they’ll stop lending to us. And that’s when we’ll be forced to make draconian cuts that will eliminate these vital programs and plunge America into a terrible depression. And when that day comes, a last-minute deal to avert the crisis won’t be possible.
Here’s a practical example of why the debt ceiling deal fails to fix the problem. Say I decide to buy a new Mercedes every year — but I have to borrow $20,000 each year to pay for the Mercedes. Five years later, I own 5 Mercedes and am $100,000 in debt. I realize I have a problem.
So the next year, I save money in other areas of my budget and I only have to borrow $10,000 to pay for the Mercedes. I now have 6 Mercedes and $110,000 in debt. If I told people I was getting my debt under control, they’d laugh in my face.
The first thing I should do to get my debt under control is to stop buying new Mercedes. Similarly, the first thing the United States should do is stop and slow the growth of entitlement programs like Social Security, Medicare and Medicaid because these are the true drivers of our long-term debt.
If you don’t believe me, just ask President Obama. A few months ago he said that by 2025, the United States would only be able to pay for entitlement programs and interest on the national debt. Everything else would have to be paid for using borrowed money.
The spending cuts in the debt deal won’t avert this future. Neither would tax increases favored by President Obama because the costs of Social Security, Medicare and Medicaid are growing exponentially. In order to pay for these programs, the government would have to keep raising taxes exponentially as well. And even if rates were to hit 80% or 90%, these programs would eventually grow so expensive that new taxes couldn’t pay for them — we’d still be forced to borrow money.
That’s not to mention the fact that raising taxes would harm economic growth, kill jobs and could actually decrease the amount of tax revenue that comes in to the U.S. treasury.
Some targeted, careful changes to tax policy, or a complete overhaul of the tax system, might be necessary to rein in our debt. An interesting approach for Republicans might have been to agree to some of these popular revenue increases (e.g. stop letting hedge fund managers avoid paying the full income tax on their income) in exchange for legislative language guaranteeing that this money would only be used to pay down the debt.
While binding language of this nature might have been difficult to craft, and the new revenue might have been small, it would have shown that Republicans were willing to at least consider all options. And it might have forced Democrats and President Obama to put real measures like entitlement and tax reform on the table right now.
Instead, a congressional committee has been created to explore these issues. But this is just another way to kick the can down the road — exactly what President Obama and congressional Republicans promised they wouldn’t do. This is a true failure on the part of all our elected leaders.
Letting the United States default was not an option. But neither was failing to reform our entitlement programs: but that’s exactly what Congress and the president have done.
A deal to raise the debt ceiling was a real chance for a bipartisan agreement to get our country on track and working together. Instead, we got months of partisan bickering and a deal that doesn’t solve our problems. Don’t get caught up in the media’s efforts to determine if Democrats or Republicans won. All that matters is that Americans lost.
David Meyers served in the White House from 2006 to 2009, and later in the United States Senate. He is currently pursuing graduate studies at Columbia University.