He Said: Start now - cut spending and raise taxes

The biggest elephant in the room is clearly the federal budget deficit, and it’s getting bigger. Our nation’s debt trajectory is unsustainable. There are vast differences of opinions on how to deal with this and when. Not only do we need to return to a balanced budget, but we ultimately need to create surpluses in order to begin to pay down the $15.4T+ in outstanding debt. The federal debt currently exceeds 100 percent of annual Gross Domestic Product. The United States is currently at a crossroads, where fundamental but thoughtful changes can be made now, or else far more painful ones can be forced upon us down the road.

The republican candidates are making promises to slash government spending and details on the specifics are starting to surface. While their respective plans are incomplete, they do provide some insight into what each candidate values.

On the other side, the democrats appear to be unable to collectively put together a plan. Obama proposes that federal spending increase from $3.8 trillion today to $5.8 trillion in 2022 – an annual rate of growth of 4.4 percent, which exceeds all GDP growth rate expectations. In real, per-capita terms, the increase is 17 percent.

The Obama administration commissioned THE NATIONAL COMMISSION ON FISCAL RESPONSIBILITY AND REFORM (Simpson-Bowles), and then disregarded it – although albeit a little early in the process, it was probably due to re-election on the brain, and an unwillingness to affect material changes. The plan had six major components:

1) Discretionary Spending Cuts: Enact tough discretionary spending caps to force budget discipline in Congress. Include enforcement mechanisms to give the limits real teeth. Make significant cuts in both security and non-security spending by cutting low-priority programs and streamlining government operations. Offer over $50 billion in immediate cuts to lead by example, and provide $200 billion in illustrative 2015 savings.

2) Comprehensive Tax Reform: Sharply reduce rates, broaden the base, simplify the tax code, and reduce the deficit by reducing the many “tax expenditures”—another name for spending through the tax code. Reform corporate taxes to make America more competitive, and cap revenue to avoid excessive taxation.

3) Health Care Cost Containment: Replace the phantom savings from scheduled Medicare reimbursement cuts that will never materialize and from a new long-term care program that is unsustainable with real, common-sense reforms to physician payments, cost-sharing, malpractice law, prescription drug costs, government-subsidized medical education, and other sources. Institute additional long-term measures to bring down spending growth.

Mandatory Savings: Cut agriculture subsidies and modernize military and civil service retirement systems, while reforming student loan programs and putting the Pension Benefit Guarantee Corporation on a sustainable path.

5) Social Security Reforms to Ensure Long-Term Solvency and Reduce Poverty: Ensure sustainable solvency for the next 75 years while reducing poverty among seniors. Reform Social Security for its own sake, and not for deficit reduction.

6) Process Changes: Reform the budget process to ensure the debt remains on a stable path, spending stays under control, inflation is measured accurately, and taxpayer dollars go where they belong.

It is apparent to many of us looking in from the outside, that revenues have to go up (higher taxes, less tax credits/deductions), and spending has to be reduced. The Simpson-Bowles report seems to be an excellent and thoughtful framework upon which begin meaningful discussion, and agreement/compromise could begin between the two political parties. But unfortunately the reality is that everyone is for “shared sacrifice” until it affects their state, district, company, and or household. It is important to note that even the Simpson-Bowles report/projections did not return the federal government to a balanced budget until 2035.

The sooner decisions and changes are made, the better, because they can be phased in more gradually, allowing more time for the economy to recover and the public to adjust, all while providing more stability in the economy. The presidential election season offers the candidates a unique opportunity for leadership in advocating solutions to put our nation on a path to fiscal sustainability.