This year, the federal deficit will exceed 11 percent of the gross domestic product (GDP), which is higher than at any point in the country’s post-war history. The Office of Management and Budget, meanwhile, has “projected a cumulative $9 trillion deficit between 2010 and 2019.” While it would be folly to try and rein in deficits now — with the economy still in incredibly weak shape — the deficit is something that will have to be addressed eventually.
As CAP’s Michael Linden and Michael Ettlinger pointed out in a new report explaining how to deal with the deficits and debt, “there is little dispute that deficits do harm if they are large enough and sustained long enough.” High government debt levels that result from sustained deficits can “leave a nation unable to go further into debt in a time of crisis,” and also mean “high interest payments on that debt in the future, reducing government’s capacity to make important public investments and provide needed services,” they wrote.
To that end, the Center for American Progress and the Center on Budget and Policy Priorities convened a conference today to look at when and how the deficits should be addressed. And of course, one of the most pressing budget problems we’re facing is getting health care spending under control. The Wonk Room caught up with Sen. Mark Warner (D-VA) — one of the conference panelists — who laid out in stark terms the reality of never-ending increases in health care costs, and lamented that Republicans have, thus far, been unwilling to cooperate on getting those costs under control:
If we think we’re going to continue to have health care inflation at the rate we’re having it, if we simply expand coverage and we don’t, I hate to use the phrase drive down the cost curve, but unless we can limit the rate of health care spending increases, we’re cooked. Game over. Because it will explode the deficit, it will make us financially non-competitive in the global economy, it’ll rob middle-class Americans of their disposable income.
That’s the missing part, where my colleagues on the other side, I wish would meet us more halfway. The Baucus plan — they requested no public option, deficit neutral, no money for undocumented folks, no money for abortions. Baucus presented that plan, and as somebody who’s spent years doing deals, you meet your objectives and many of them still walk away. I wish they would put aside the politics and say, let’s actually get in gear and find a way to drive down these costs.
When asked about ways to raise revenue to address the deficit, Warner responded, “the lesson that we learned in Virginia is that you’ve got to show an ability to cut, to reform, before you can even begin — at least in my experience — even bring up the question about revenue.” That may be true in terms of voter psychology, but in terms of practicality, something will have to be done on the revenue side to get the budget back into balance. As Linden and Ettlinger noted:
Much is said about the economic effect of tax increases, but it is worth noting that there is little risk of the United States becoming economically disadvantaged relative to other advanced economic nations by raising its aggregate tax levels. We have the fifth lowest taxes as a share of GDP among economically developed nations (counting all federal, state, and local taxes). If we raised taxes in aggregate to a level that would safely balance the budget, the United States would still be in the bottom 10 out of 30.
Not that balancing the budget solely on tax increases is a desirable way to do things, but those numbers should put in perspective what we’re talking about when we talk about tax increases. A sustainable fiscal path will require both cost-cutting and new sources of revenue — and of course, a political system that can make and support those difficult choices.