It’s easy to look at the nation’s capital these days and conclude that the place has deserted reality, to put it mildly. While everyone obsesses about tax reform and whether that will be a net gain or loss for taxpayers, budget deficits continue to soar, the national debt piles higher, and many very real problems facing the nation go unaddressed. It’s as if the entire D.C. establishment were acting out a farce in which both parties compete to see which one can best avoid reality rather than face it.
The hard reality is that the federal deficit this past fiscal year totaled $666 billion (maybe we should call it the “mark of the devil” deficit), and the national debt is over $20 trillion and climbing. If this rate of increase isn’t slowed, the nation could face $30 trillion in debt in 10 years, according to the nonpartisan Congressional Budget Office — truly dangerous fiscal territory.
Whether the economy grows substantially or not based on what Congress does on taxes, big deficits are projected for the foreseeable future. Eventually, as outsized federal government borrowing vacuums up huge loans, the inevitable result will be that interest rates will jump, private-sector borrowing will be crowded out, consumer confidence will plummet, and the country will slip into a deep recession, one potentially steeper and harder to shake off than the last one, in 2007-09. And since as much as a third of every dollar that the federal government borrows comes from outside the U.S. (i.e., China), we would end up owing our economic soul to foreigners, who could eventually demand a day of reckoning. We may indeed find that getting into fiscal hell is easier than getting out. Think it can’t happen? See Spain, or Greece, or Italy, or France . . .
So what do our leaders say about this looming threat? Republicans say, “Don’t worry, we’ll cut taxes and hope we grow out of the crisis.” Democrats say, “Don’t worry, let’s keep spending as usual and hope we don’t go broke.” This don’t-worry-be-happy attitude of the parties must change if we’re to avoid falling off the approaching fiscal cliff. It will require a fundamental shift in partisan attitudes that have poisoned recent efforts to get our fiscal house in order. Every aspect of federal spending must be examined. No program can remain sacrosanct.
And the one area that requires most urgent attention is “entitlements,” which consume well over half of the federal budget. That means dealing with the so-called third rail of federal spending, Medicare and Social Security. This spending has been off-limits for a generation. The last time modest changes were made to Social Security was in 1983. That was done only because President Reagan and Congress had established the bipartisan National Commission on Social Security Reform in 1981. It was chaired by Federal Reserve Chairman Alan Greenspan, and its members included my former colleague Patrick Moynihan, New York’s senior senator at the time.
This distinguished group hammered out adjustments to Social Security that have helped keep it solvent for the last 34 years, including a key provision gradually raising the age of full Social Security benefits from 65 to 67. Congress adopted the commission’s proposals with overwhelming bipartisan majorities, and Social Security was saved for a time.
But it is again time to revisit this entitlement. Otherwise the Social Security system will run so short of funds that by 2035 it will be able to pay only three-quarters of benefits that retirees would otherwise expect. The reason? Since the program first began paying benefits in 1940, the average life expectancy for American men has increased to 76, and for women it has jumped to 81. And because members of the baby boom generation — those born from 1946 to 1964 — are entering retirement age in droves, still more pressure is being placed on the retirement system. In the meantime, the American workforce has shrunk, so fewer workers are contributing to Social Security, even as more people are entering the system. A revenue shortfall is thereby ensured.
Because of these factors, the Social Security system must again be adjusted to stay solvent. That can be achieved by gradually raising the retirement age to 69 over the next decade, following the pattern set by the last Social Security commission. It may take another special commission to propose a bipartisan solution, and if so the president and Congress should agree on one. The time to act is now, not when it’s too late.
This and other hard choices will need to be made if the U.S. is to avoid sinking into economic decline from which it may not be able to fully recover.
Al D’Amato, a former U.S. senator from New York, is the founder of Park Strategies LLC, a public policy and business development firm. Comments about this column? ADAmato@liherald.com.