Meaningful Reforms the Only Way Out of Crippling National Debt
June 30, 2015
Federal budget deficits and the growing national debt are less in the news these days for a couple of reasons.
- For starters, annual deficits are expected to be lower for the next several years compared with the recent past. The Congressional Budget Office (CBO) projects that the 2015 federal deficit will be $486 billion — a lot of borrowed money for sure, but far less than the $1.3 trillion average deficit from 2009 to 2012.
- CBO expects the annual deficit to remain essentially the same through 2018. Further, deficit spending and what to do about it is an unpopular topic for politicians, so if they can avoid talking about it, they do.
But just because the issue isn't in the news every day doesn't mean the problem has gone away. Indeed, CBO's recent report on the long-term budget outlook makes it clear that mounting federal debt remains the most serious non-military threat to our continued strength and prosperity.
The size and scope of the problem were made much worse by the financial crash of 2008 and its aftermath:
- From 2009 to 2012, the federal government ran a cumulative deficit of $5 trillion, almost doubling the national debt.
- Federal debt now stands at 74 percent of Gross Domestic Product, far above the post-war norm of around 35 to 40 percent. This means the country is entering a very challenging period of fiscal stress, driven by the aging of the population and rising health expenses, from a position of considerable weakness.
The key themes of a serious reform effort should be:
- Encouraging longer working lives, e.g. by raising retirement ages and lowering explicit and implicit taxes on wages; altering programs to require middle- and upper-middle-class households to finance more of their own retirement and health-care needs out of their personal resources;
- Improved efficiency in the health system through strong price competition and consumer choice;
- And more state flexibility and responsibility in running programs within fixed budgets.
Source: James Capretta, "The Debt Is Still a Major Threat," Real Clear Policy, June 30, 2015.
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