President Barack Obama took office promising to lead from the center and solve big problems. He has exerted enormous political energy attempting to reform the nation’s health-care system. But the biggest economic problem facing the nation is not health care. It’s the deficit. Recently, the White House signaled that it will get serious about reducing the deficit next year—after it locks into place massive new health-care entitlements. This is a recipe for disaster, as it will create a new appetite for increased spending and yet another powerful interest group to oppose deficit-reduction measures.
Our fiscal situation has deteriorated rapidly in just the past few years. The federal government ran a 2009 deficit of $1.4 trillion—the highest since World War II—as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years.
Going forward, there is no relief in sight, as spending far outpaces revenues and the federal budget is projected to be in enormous deficit every year. Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 per American. By 2019, according to the Congressional Budget Office’s (CBO) analysis of the president’s budget, the budget deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.
What to do? The best option would be for the president to halt Congress’s rush to fiscal suicide, and refocus on slowing the dangerous growth in Social Security, Medicare and Medicaid. He should call on Congress to pass a comprehensive reform of our income and payroll tax systems that would generate revenue sufficient to fund its spending desires in a pro-growth and fair fashion.
Reducing entitlement spending and closing tax loopholes to create a fairer tax system with more balanced revenues is politically difficult and requires sacrifice. But we will avert a potentially devastating credit crisis, increase national savings, drive productivity and wage growth, and enhance our international competitiveness.
The time to worry about the deficit is not next year, but now. There is no time to waste.”—
Mr. Holtz-Eakin is former director of the Congressional Budget Office and a fellow at the Manhattan Institute. This is adapted from testimony he gave before the Senate Committee on the Budget on Nov. 10.
I’m glad to see someone is telling them.