The gaping deficits are threatening the economy to the point they can no longer be ignored by anyone in government and may lead “to a crisis that could dwarf 2008," 10 former members of the President’s Council of Economic Advisers write in an open letter published by Politico.
The letter, written by former chairmen and chairwomen of the council serving both Republican and Democratic administrations, 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 the 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.
|Erskine Bowles (left) and Alan Simpson
"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 addressing 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 point out.
Tax reform is also needed, which was called for in the report issued by Bowles and Simpson.
Yet not everyone will fully agree on how to steer the economy away from overspending, and the Bowles-Simpson report will not receive a warm embrace from all of the nation's economic leaders.
"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."
But it is a start, and a good start at that.
"To be sure, we don’t all support every proposal here. 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," the letter reads.
"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."
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, according to the Wall Street Journal.
"This is a problem we are going to have to face up to it 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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