Congress and the White House avoided the “fiscal cliff.” They have postponed a showdown over the debt ceiling until the summer. Two deadlines loom, the “sequester,” an automatic $1.2 trillion spending reduction, set for March 1, and the expiration of the latest temporary measure funding the federal government, set for March 27. That leaves time for an unlikely yet necessary application of perspective to the financial challenges facing the country. They do not amount to the immediate crisis many often portray.
Over the weekend, Don Lee and Jim Puzzanghera of the Chicago Tribune Washington Bureau made a constructive contribution to the debate. They reported on a range of experts explaining the country isn’t about to follow the path of Greece or soon suffer trauma for its $1 trillion shortfall.
That isn’t to argue the deficit hardly matters. Look at the recent spending forecast by the Government Accountability Office, Medicare and Medicaid roughly doubling as a share of the overall economy, the former from 3 percent to 5.9 percent by 2040, the later from 1.7 percent to 3.8 percent at the same time. Interest payments on the debt soar. The steep trajectory cannot be sustained.
By the way, Social Security currently stands at 4.9 percent of the overall economy. It peaks at 6.3 percent, and then declines slightly, a reminder that the program does not represent an unmanageable threat to sound financing.
Much of the increase in Social Security, Medicare and Medicaid comes as no surprise. Baby boomers are starting to retire, their large presence adding to the country’s spending requirements. What Congress and the White House must do is meet those obligations while slowing the growth in the health-care programs. The Affordable Care Act has mechanisms for meeting the goal. The job must involve other steps, too, such as additional means-testing or tapping Social Security for savings through an adjusted inflation escalator.
What Lee and Puzzanghera remind is that taking steps earlier makes the process much less painful. That shouldn’t result in the hysteria surrounding budget confrontations of late, one backfiring in the form of a downgrade in the country’s credit rating. The current deficit, around $1 trillion, isn’t hurting things now, interest rates and inflation still low, the spending helping to make up for weakened demand in the private sector.
Congress and the White House already have agreed to more than $2 trillion in deficit reduction during the next decade, 72 percent from spending cuts, 28 percent from additional revenues. Add another $1.2 trillion in savings, and experts argue the national debt would stabilize as a share of the economy, at 73 percent or so. That is too high, yet it represents a reasonable place to start in this economy, the latest installment split evenly between new revenues and spending cuts.
That should be relatively easy for Washington to achieve. It shouldn’t take another operatic showdown — on the sequester, the temporary spending bill or the debt ceiling.