It's rare that those of us concerned about the nation's fiscal course come bearing good news. The federal debt, after all, is as high as it has ever been in the post-1945 period and is growing uncontrollably. Under our best projections, the debt will grow from nearly 65% of gross domestic product today to over 90% by the end of the decade — a level that experts have warned could have dangerous economic consequences.
Yet while our fiscal challenges are large and growing, they are not insurmountable. The National Commission on Fiscal Responsibility and Reform, on which I served as associate director, has shown a way forward. Its recommendations offer proof that broad bipartisan support for deficit reduction — based on the principle of shared sacrifice — is possible. Yes, the population is aging, which means Social Security and Medicare costs will rise. And yes, health care costs continue to grow faster than the economy, putting upward pressure on federal health spending. But we can address these challenges. Our problems are not fundamentally economic; they are political.
The politics of pain makes deficit reduction a difficult task, of course. More worried about the next election than about the next generation, politicians prefer to avoid or defer decisions that increase people's taxes or cut their benefits and services.
Making things worse, pledges of what not to do — raise taxes, meddle with Social Security, cut defense spending — are pervasive in Washington. The more pieces of the budget that policymakers take off the table, the harder it is to bring debt under control.
And yet the fiscal commission overcame these odds. The plan would cut $1.7 trillion in discretionary spending — both defense and nondefense — while protecting, and in some cases increasing, spending on education, infrastructure and high-value R&D. It would cut $600 billion in mandatory spending, especially by reducing health care costs and reforming federal pensions, while protecting programs for the poor and disadvantaged. It would reform the tax code in a way that reduces or eliminates various tax breaks in order to drastically cut tax rates while helping generate nearly $1 trillion in new revenue. And it would make the Social Security system solvent for the next 75 years and beyond through a combination of progressive changes to the benefit formula, a gradual increase in the retirement age and an increase in the amount of income subject to the payroll tax, among other measures.
In total, the fiscal commission's recommendations would reduce the deficit by $3.9 trillion through 2020, bring annual deficits to manageable levels of 1% to 2% of GDP (compared with 10% this year) and put the debt on a downward path after 2013.
The recommendations prove that we can enact policies to bring the debt under control and do so without cutting spending or increasing taxes in a way that hurts low-income individuals or stifles investment and growth. Far more important, the commission showed that such a plan can garner support from across the political spectrum. The plan received the support of 11 out of 18 commissioners, a bipartisan super majority that comprised five Democrats, five Republicans and one independent. The fiscal commission demonstrated emphatically that the parties can work together, in the spirit of principled compromise, to get our fiscal house in order.
Unfortunately, the President's budget this year failed to include most of the commission's recommendations, and House Republicans have thus far focused too narrowly on cuts in domestic discretionary spending. But neither party has ruled out the adoption of the recommendations. As tough votes on this year's budget and a debt-ceiling increase come up, a comprehensive deficit-reduction plan may be the only way to avoid stalemate.
On our commission, we actually found that the "go big" approach helped garner more votes, not fewer. Republicans were willing to cut defense spending, but only if nondefense spending (including entitlements) was also cut. Democrats were willing to accept substantial spending cuts, but only if accompanied by significant new revenues.
If President Obama and the leadership of both chambers of Congress — and both parties — are willing to enter into serious negotiations to solve our fiscal problems, there is no doubt that they can reach agreement. Everyone will have to give up something. After all, the solutions are painful. But in the process, everyone can get something in return: a better future.