Greece is in economic turmoil. Its collapse is painful to watch. Even with the latest bargain with creditors, the Greek government is having trouble honoring its obligations; its debt remains unmanageable.
While the U.S. is certainly not Greece in the severity of its fiscal challenges, we can learn an important lesson from these events: Failure to address a growing debt can undermine the fiscal health and economic stability of a country.
Under current U.S. law, the federal debt held by the public will grow from $13 trillion, which is 74 percent of GDP, to exceed 100 percent of GDP in the next 25 years, according to the nonpartisan Congressional Budget Office. This potentially could reduce every American’s income by between $2,000 and $6,000, on average. And the longer we wait to fix the problem, the less flexibility lawmakers will have to phase in policy changes over time, which then could lead to painful cuts that could roil financial markets and stifle job growth.
Although annual budget deficits have declined in recent years, they remain at historically high levels as our debt continues to grow. And it is projected to keep growing at an unsustainable rate, mostly due to the spending growth for Social Security, health care programs and interest on the debt.
Many lawmakers talk about cutting “waste, fraud and abuse” as the answer to our fiscal challenges. That sloganeering might win applause, but it fails math. To honestly deal with the leading drivers of our debt, we must address health care, interest and entitlement spending. Only then can we put the country back on a sound, long-term fiscal trajectory.
By 2030 when the baby-boom generation is fully retired, we will have twice as many retirees as today and relatively fewer workers to support them through payroll taxes. The aging population and rising health care costs will increase federal spending on Social Security and federal health care programs like Medicare and Medicaid to such a degree that it essentially will crowd out other public programs and priorities or it will accelerate the growth of deficits and debt. Something has to change.
My experience as a former member of Congress leads me to believe that it is possible for lawmakers to reach a long-term budget deal — a grand bargain. But it will require members of both parties to work together to re-establish trust and let go of their sacred cows in order to solve the problem in a bipartisan way.
The Committee for a Responsible Federal Budget has been calling for this kind of sensible bipartisan deficit reduction for a long time. I am proud to co-chair this highly respected organization and now even more proud to be joined in this effort by two new co-chairs: Leon Panetta, who served in the Clinton and Obama administrations, and Mitch Daniels, who served President George W. Bush and then served for two terms as Indiana’s governor.
At the committee, we strongly believe that Congress and the president need to enact policies that will strengthen Medicare and Social Security for future retirees and couple that with progrowth tax reform that lowers rates, raises revenues, and promotes job creation and American competitiveness.
By taking these steps, we can stabilize the debt as a share of GDP, while also providing the budget flexibility to invest in valuable programs — such as research and infrastructure — that will boost economic growth and create jobs.
It is long past time for Washington’s leaders to finally address the debt in a responsible way and thereby preserve the long-term economic well-being of Americans. Those of us at the Committee for a Responsible Federal Budget will continue to urge Congress and the president to do just that.
Tim Penny represented Minnesota’s First District in the U.S. House from 1983 to 1995. He is co-chair of the Committee for a Responsible Federal Budget.