The growing U.S. budget deficit is a huge problem, but can be solved with a mix of gradual spending cuts and a tax system overhaul, a member of President Barack Obama's deficit panel said on Tuesday.
"Can we fix the budget deficit? I think we can, I think we must, I don't even think it's all that hard," Alice Rivlin, a former director of the Congressional Budget Office who sits on the National Commission on Fiscal Responsibility and Reform told a group of business leaders in Chicago.
Voter concern over the burgeoning budget deficit — made worse by the recent recession and government spending designed to speed economic recovery — is expected to impact November's Congressional elections.
Obama formed the 18-member bipartisan deficit panel early this year to tackle the deficit, which the Congressional Budget Office last month forecast to reach $1.342 trillion this year.
To do so, the government must phase in a broad array of changes, Rivlin told the gathering, hosted by the Executives' Club of Chicago.
"We can't fix it on the spending side alone," Rivlin said. "We can't fix it all on the revenue side either."
To reduce spending, the government should raise the retirement age at which workers are eligible for full social security benefits from the current 66 to an eventual 68, and tweak other aspects of the system to reduce payouts, she said. The government should also trim long-term growth in medical spending, in part by making the consumer marketplace for insurance more competitive.
On tax system, "if we did a drastic simplification, we could bring the rates down and still raise more money," she said. Policy options for raising revenue also include a national sales tax and a tax to discourage carbon use, she said.
Rivlin expressed optimism that progress on both fronts can be made after the November elections.
"I do think there is forming a fairly good consensus that social security can be fixed and ought to be," she said. "Tax reform has some legs and some partisan legs," and the administration has already capped some discretionary spending, she said.
The recession and its aftermath have boosted the deficit to levels that have been problematic in other countries, she said, and the government must put in place programs to address is or risk losing its ability to keep borrowing cheaply.
"When the markets begin to suspect that the sovereign debt they thought was so safe is not so safe anymore, things go bad very fast," she said. "We don't know when that would happen; we don't want to find out."
© 2017 Thomson/Reuters. All rights reserved.