Will we have a debt debate?
President Obama ran a campaign ad during the London Olympics claiming that this election is neither about the two parties’ candidates nor even about two persons running for chief executive of the American government. Instead, he suggested the campaign is really about two different visions of how the federal government should create jobs and get us out of this recession.
He is dead right in this part of his message (the vision part, not the government-creating-jobs part) even though the balance of it mischaracterizes his opponent’s position rather dramatically, as you would expect in a campaign ad.
Most economists that I listen to would agree that the only way for the economy to recover is to grow again. The economy can start growing when the nation’s employers believe that elected officials in Washington and in the state capitals are going to behave responsibly. There may not be enough of a culture of responsibility for a political campaign to engage in a serious way, but many prominent Americans and organizations have demanded a presidential debate on the debt as part of this year’s presidential campaign.
Recent chairs of both the Republican and Democratic national committees – and a bipartisan group of U.S. senators that includes Lindsey Graham, R-S.C.; Saxby Chambliss, R-Ga.; Mark Pryor, D-Ark.; and Joe Lieberman, I-Conn. – have all written recent letters to the Commission on Presidential Debates, the organization that sponsors and referees the debates among presidential candidates. The Wall Street Journal and high-profile business leaders, such as Honeywell International CEO David Cote, have added their support to the idea.
There is also grassroots support. Over 19,000 voters have signed the Debate the Debt petition. If you would like to, you can sign the petition as well at http://debatethedebt.org/
The nonpartisan Congressional Budget Office has been warning of trouble in the economy, and they issued their sternest warning yet to their political bosses yesterday. In this report, CBO estimates that under current law the combination of sudden tax increases and spending cuts ordained by the automatic sequestration – widely referred to as the “fiscal cliff” – should cause the debt to fall to 58.5% by 2022, after peaking at 76.6% of GDP in 2014.
However, many in Washington believe, and the CBO acknowledges formally in an “alternative fiscal scenario,” that the most likely course of action for the Congress following the election this fall is to extend the 2001 tax cuts, as happened in 2003 and 2010; to patch the Alternative Minimum Tax to keep more middle-income earning Americans from being impacted; to delay or eliminate the 27% cut in Medicare physician payments; to repeal the automatic sequester; and to extend some temporary taxes.
If they do this, says the CBO, the debt will rise from 72.8% of GDP this year to 82.5% in 2017 and 89.7% by 2022. We’re not “kicking the can” anymore. We’re dragging the anchor. Greece essentially became a ward of the Germans at around a 90% ratio of debt to GDP. Incidentally, every state is also inching toward that magic ratio, at varying rates, and will get there if nothing is done to reform entitlements.
If you would like to read up on what could be happening to us, you will find a lot of useful information at http://www.fixthedebt.org/.