Op-Ed: How To Handle Our Long-Term Debt

Jun 28, 2012 Peter G. Peterson

The public is undergoing a cultural shift, driven by generations of punted fiscal decisions and the need for innovative leadership in tough economic times. Voters have determined that budget issues once considered untouchable — including long-term pension and health care obligations — are now open for discussion. Reformers in both parties have been spurred to action. While federal leaders still lag several steps behind, governors and state leaders are already taking action.

Govs. Andrew Cuomo of New York, Chris Christie of New Jersey and Scott Walker of Wisconsin have all made difficult — and not always popular — decisions to begin addressing the massive, unfunded long-term pension and health care liabilities that could lead to state-level fiscal crises and threaten critical investments in areas like education.

In Rhode Island, state treasurer Gina Raimondo led the effort to reform the public pension system, not because she's a conservative firebrand — she's a Democrat — but because it's vital. "If we didn't fix those pensions," Raimondo said, "there would be no good public schools."

Each of these leaders dealt with long-term fiscal problems differently — and partisans can find flaws in the methods used. But the common thread that binds them is a recognition that to shore up their economies over the long term, states cannot go on ignoring their unsustainable long-term fiscal challenges. Confronting many challenges to growth and job creation, these leaders rolled up their sleeves and tackled a range of issues central to their states' economic health and competitiveness.

The question now is whether action on long-term structural deficits is possible at the federal level, too.

If current policies continue, the nonpartisan Congressional Budget Office recently projected, federal debt will rise from 70 percent of gross domestic product today to about 225 percent by 2040 — not even remotely sustainable. By that point, the federal government would be spending nearly four times as much on debt interest payments as on education, skills training, research and development and nondefense infrastructure combined.

As these massive debt costs crowd out crucial investments, our economy will likely slow — assuming we are fortunate enough to avoid a full-blown crisis. The politics of debt reduction will then get brutal and no one — even the most vulnerable — will be spared the budget ax.

To avoid this fate, we need a comprehensive, compassionate and fair plan to deal with long-term federal debt — one that includes increased revenue and spending cuts.

You just can't solve this problem if you ignore the ballooning costs of Social Security and Medicare. Social Security and health care spending account for 100 percent of the projected increase in noninterest federal spending over the next 25 years.

It's one thing to do what some states are doing and reform public pensions — which affect a relatively small portion of the population. But almost everyone in America is covered by Social Security and Medicare as they grow older — which means virtually everyone has a personal stake. Federal leaders must also contend with the formidable, 50-million strong AARP, which vows to rally its members against any federal entitlement reform.

There is, however, encouraging evidence that the public may be getting ready to cast aside ideology and consider bold changes to get America's long-term fiscal house in order. In fact, Americans may be ahead of their leaders on this.

Sixty-seven percent of voters would be willing to do their part to tackle long-term debt challenges as long as other people are doing their part, too, according to a poll commissioned by our foundation and conducted by the Global Strategy Group. And 87 percent believe that to solve the long-term debt problem, Republicans will have to accept some tax increases, and Democrats will have to accept some spending cuts.

The key here is that voters want to know that whatever sacrifices are required — higher taxes, reduced benefits or both — are fully and fairly shared.

As eyes focus on the presidential contest, there are lessons here for President Barack Obama and former Massachusetts Gov. Mitt Romney.

First, be upfront with voters. Americans don’t need to be coddled or cocooned from the truth. They're willing to face facts about the country’s long-term fiscal outlook.

Second, be specific. People have heard enough empty generalities about debt reduction, securing entitlements and making critical investments — with nary a word about where we'll get the resources to invest given our huge debt load. Americans know it will take tough decisions. They want to hear how candidates plan to make them.

Third, recognize the value of bipartisanship. Neither party is likely to emerge from this election in control of the White House, the House and a filibuster-proof majority in the Senate. A credible, long-term fiscal responsibility plan — one that builds the confidence our economy desperately needs — will require buy-in from both parties.

Democrats and Republicans should make their priorities clear — but avoid the temptation to denigrate the fundamental necessity of compromise. Most Americans aren't as rigidly ideological and hungry for red meat as politicians think.

It will take leadership to rein in our unsustainable long-term debt and ensure a strong, growing economy in the future. Tough decisions will have to be made over the next few years. Americans will have to sacrifice — and they're telling politicians they're ready to do so.

Are leaders in Washington listening?

Expert Views: Fiscal Commission

We asked experts with diverse views from across the political spectrum to share their perspectives.

National Debt Clock

See the latest numbers and learn more about the causes of our high and rising debt.