The politics associated with the upcoming presidential election will surely dominate media coverage and the public’s attention over the next eight months. The Republican Party will finally choose their candidate and the focus of our national debate will shift to which party and which candidate has the best solutions to the nation’s problems and can credibly get these solutions enacted and working properly. With GDP growth under 2.5 percent likely in 2012 and 2013, everyone’s top priority is the economy, but that is where all agreement ends. Appropriately, there will be much discussion on two topics—taxes and government spending—where broad differences exist between the parties. Should taxes be increased or decreased, by how much and for whom? Where should government spending on programs be increased and where should it be cut back? The advocates of each position on such issues will claim that their approach will more quickly boost economic growth, yield higher levels of employment and achieve the “right balance” between the public and private sectors. How should the voting public judge these conflicting claims and positions?
Given the precarious position of our federal government’s finances, voters would be wise to carefully balance any promised short-run gains against the implications for long-term fiscal health and sustainable economic growth for the next decade and beyond. While short-term measures are important, we should insist that they are acceptable only as part of a long range plan that gives adequate attention to our country’s ever-mounting public debt. This can be done only if we genuinely restructure entitlement programs, cut domestic and defense spending and overhaul the tax code to raise revenues while increasing fairness and competitiveness. And yes, because of projected cost growth, we have to re-open the healthcare issue since the recent legislation was more about expanding entitlement than reducing overall medical costs. It is widely recognized that it is not possible to make any one of these changes by itself—it is only politically possible if each party simultaneously both gains and gives up on some of its most cherished programs and positions. There does seem to be nearly universal agreement that something like this must be done at some point, and that much more drastic and painful actions will be required the longer we wait. So, why haven’t we done something about this?
The answer to this question is almost too simple, but it seems clear that a long-term plan that deals with all these key issues can be put in place only with extraordinary leadership—which we have not had. We have had a succession of “debt ceiling crises” over the years, with no real long-term resolution other than authorizing more debt; the U.S. Congress’s own Joint Select Committee on Deficit Reduction reported last November that it could not reach bipartisan agreement before its deadline; President Obama has ignored the very credible recommendations of his own National Commission on Fiscal Responsibility and Reform; and the Fiscal Year 2013 budget that the Administration sent to Congress only makes the debt problem worse. Further, a number of private organizations have advanced sensible long-term approaches, notably the Bipartisan Policy Center’s Debt Reduction Task Force, but these plans have not received sufficient attention.
The world’s financial markets have given the U.S. a respite from their demands that something be done about our deficit and debt levels. With the recessions and sovereign debt crises in Europe, the dollar remains relatively strong and there is still an appetite around the world for U.S. debt as a safe haven investment. Further, the flood of three-year lending recently undertaken by the European Central Bank and the promise of near zero short term rates through 2014 by the U.S. Federal Reserve has allowed the continual refunding and new sales of U.S. government debt to be accomplished at very low interest costs. This condition will not last forever, and both history and economic projections tell us that interest rates will rise in the future. Indeed, interest costs could easily become the fastest growing component of the federal budget in five to ten years. The United States has now been given more time to fix its fiscal problems, and this respite should be used wisely and soon.
Getting behind a long-term plan that really does something sensible about the federal government’s annual deficits and total debt level does involve touching all the political “third rails” at once. But, since we can’t seem to reach a conclusion any other way, isn’t this exactly what each of the presidential candidates from the two major political parties should do right now if they really seek to lead our country for the next four years? The country’s citizens should not accept short-term promises and piecemeal steps, but demand long-term vision and enduring answers. We deserve leadership that lays out the long-term options, makes the hard choices and creates the public and political consensus that will finally resolve the most important long-term issue facing us and future generations.