America’s gaping budget deficit could lead to a crisis that would “dwarf” the meltdown of 2008 — and to get the country out of its fiscal mess, the government must slash spending substantially, according to 10 former members of the President’s Council of Economic Advisers.
The economic experts — former chairmen and chairwomen of the council serving both Republican and Democratic administrations — issued the warning in an open letter published by Politico.
They say recommendations by budget watchdogs Erskine Bowles and Alan Simpson, arguing that the long-run federal budget deficit will pose a serious threat to the economy, need much more attention from both political parties. Bowles and Simpson co-chaired the White House’s deficit-reduction commission in 2010.
The nonpartisan Congressional Budget Office in January raised its estimate for the annual deficit from $1.1 trillion to $1.5 trillion. It said tax cuts would add $400 billion to this year's gap. The budget year ends Sept. 30.
The full-year deficit would exceed 2009's record deficit of $1.41 trillion. And it would mark the third straight year of $1 trillion-plus deficits.
"There are many issues on which we don’t agree. Yet we find ourselves in remarkable unanimity about the long-run federal budget deficit: It is a severe threat that calls for serious and prompt attention," the authors write in the letter addressed to Congress and President Barack Obama.
"While the actual deficit is likely to shrink over the next few years as the economy continues to recover, the aging of the baby-boom generation and rapidly rising healthcare costs are likely to create a large and growing gap between spending and revenues. These deficits will take a toll on private investment and economic growth."
Lenders, the authors point out, will run out of patience with Washington's spending spree: "At some point, bond markets are likely to turn on the United States — leading to a crisis that could dwarf 2008."
To get the country out of its fiscal mess, the government must slash discretionary spending substantially, according to the Bowles-Simpson report.
"Everything is on the table, including security spending, which has grown rapidly in the past decade," the authors of the letter point out.
Tax reform is also needed, according to Bowles and Simpson.
The open letter does not wholeheartedly endorse the Bowles-Simpson report.
"To be sure, we don’t all support every proposal here,” the letter reads.
“Each one of us could probably come up with a deficit reduction plan we like better. Some of us already have. Many of us might prefer one of the comprehensive alternative proposals offered in recent months.
"Yet we all strongly support prompt consideration of the commission’s proposals. The unsustainable long-run budget outlook is a growing threat to our well-being. Further stalemate and inaction would be irresponsible."
The former advisers caution: "The commission’s recommendations for slowing the growth of government healthcare expenditures — the central cause of our long-run deficits — are incomplete.
“It proposes setting spending targets and calls for a process to suggest further reforms if the targets aren’t met. But it also lays out a number of concrete steps, like increasing the scope of the new Independent Payment Advisory Board and limiting the tax deductibility of health insurance."
Bowles and Simpson have said the U.S. will battle a destabilizing fiscal crisis in two years or even sooner if spending isn't brought under control.
"This problem is going to happen long before my grandchildren grow up," Bowles, who was White House chief of staff during the Clinton administration, said recently in remarks reported by the Wall Street Journal.
"This is a problem we are going to have to face up to in maybe two years, maybe a little less, maybe a little more."
Simpson, a former Republican senator from Wyoming, agrees, adding: "I think it will come before two years."
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