Newspaper article International Herald Tribune

Another Fiscal Flop

Newspaper article International Herald Tribune

Another Fiscal Flop

Article excerpt

The deal we are heading toward is discouraging. It doesn't involve a single hard decision.

Over the course of the 20th century, America built its welfare state. It was, by and large, a great achievement, expanding opportunity and security for millions. Unfortunately, as the population aged and health care costs surged, it became unaffordable.

Public debt as a percentage of gross domestic product was around 38 percent in 1965. It is around 74 percent now. Debt could approach a ruinous 90 percent of G.D.P. in a decade and a cataclysmic 247 percent of G.D.P. 30 years from now, according to the Congressional Budget Office and JPMorgan.

By 2025, entitlement spending and debt payments are projected to suck up all federal revenue. Obligations to the elderly are already squeezing programs for the young and the needy. Those obligations will lead to gigantic living standard declines for future generations. According to the International Monetary Fund, meeting America's long-term obligations will require an immediate and permanent 35 percent increase in all taxes and a 35 percent cut in all benefits.

So except for a few rabid debt-deniers, almost everybody agrees we have to do something fundamental to preserve these programs. The problem is that politicians have never found a politically possible way to begin. Every time they tried to reduce debt, they ended up borrowing more and making everything worse.

So Congress and President Obama set up the "fiscal cliff," an artificial disaster scenario that would force them to do the right thing. Obviously, the fiscal cliff negotiations were not going to lead toward the deep structural reforms that will eventually be needed. But they could have begun the reform process.

They could have shown the world that the two parties can work together to avert the eventual calamity. They could have produced a balanced program that would have combined spending cuts and targeted tax increases. They could have reduced Medicare spending on the rich to free up more money for young families.

President Obama and the speaker of the House, John Boehner, both earnestly wanted to achieve these things. But the deal we are heading toward is discouraging. Yes, the deal does raise $600 billion in revenue over 10 years from a tiny sliver of the population (compared with the $8 trillion in new debt likely to be accrued over that time).

But the proposal is not a balance of taxes and spending cuts. It doesn't involve a single hard decision. It does little to control spending. It abandons all of the entitlement reform ideas that have been thrown around. …

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