Greek crisis raises concerns with U.S. deficit
There's no E.U. for the United States.
The Greek financial crisis, born of debt-financed spending, has economists and deficit hawks warning of parallels with the United States' long-term budget problems. But there's one key difference, said Dana Martin, of a Washington-based policy group.
"The E.U. has been able to step in and provide a bailout package" of about $1 trillion to keep Greece solvent, said Martin, chief of staff at the Center for the Study of the Presidency and Congress. "Who can possibly provide the magnitude of a package that the U.S. would need to have a similar type of rescue• You're talking about a global problem that is going to be incredibly difficult to stem."
The nonpartisan, nonprofit center issued dire warnings about the country's structural deficits -- rooted in Medicaid and Social Security -- that dwarf things such as the federal stimulus bill and foreign aid. Closing the gap will require politically poisonous decisions such as slashing entitlement benefits and raising taxes.
Federal lawmakers have had little serious public discussion about how to fix the problem, the center's senior fellow on leadership ethics and integrity, Egil "Bud" Krogh, said in an interview with the Tribune-Review.
A bill that would have created a bipartisan commission to come up with a plan fell prey to a Republican filibuster in January amid partisan wrangling over the health care bill. Six GOP co-sponsors of the bill voted against it.
"It's very hard in that town because it's always about 'this morning, this afternoon,' " Krogh said.
Add up the country's projected deficit spending over the next 40 years, and it amounts to about $62 trillion, said John Boyer, the center's director of congressional relations. That's about $3 trillion more than the combined gross domestic product of every country in the world in 2008. It works out to $200,000 for every citizen. Spread over 40 years, it's as if Americans are born with a mortgage "and no house," Boyer said.
After the Senate bill failed, President Obama appointed a commission charged with devising long-term budget recommendations by Dec. 1. Alan Simpson, a former Republican senator, and Erskin Bowles, former President Clinton's chief of staff, lead the 18-member panel. Several members of the commission declined to comment.
Simpson of Wyoming told the Tribune-Review in a recent interview that every line item in the federal budget is up for scrutiny. Speaker Nancy Pelosi and Senate Majority Leader Harry Reid promised to let the commission's proposal come to the floor for a vote.
"When we submit our report, there will be shrieking, crying, the moaning wail of coyotes coming from the hills. They can ignore it totally if they wish, but they'll know a hell of a lot more on Dec. 1 than they know now," Simpson said in March.
Tax increases -- or at least radical changes to the tax code -- and entitlement cuts likely are the only way out, Boyer said.
Carnegie Mellon University economist Allan Meltzer said the Obama administration is likely to address the problem after November's elections, but before Congress convenes in January.
The administration will "attempt to get the new Congress to pass a value-added tax, with some exemptions for lower incomes," he predicted. "If that fails, Congress will be back to decide on spending reductions and tax increases."
About half of U.S. debt is financed by foreign governments, including China, Saudi Arabia and Japan. As debt grows, economists are warning of the country's credit rating being cut -- as Pittsburgh's was after it entered state receivership in 2003.
"They're not talking about 10 to 20 years out. They're talking five to 10 years," Martin said.
With the country's reliance on countries such as China, which could decide at any time to stop financing U.S. debt, "there's a sovereignty and national security issue here, too," Boyer said.
The debt is growing, and the changes needed, though painful, will only get worse with time, Martin said.
"The costs of acting later are so much higher than they are of addressing it now," Martin said.