A growing choir of concern about overspending

April 20, 2010

Concerns about the disastrous effects of overspending are becoming more pronounced. As the excerpts below demonstrate, this is not a Republican or Democratic issue; this is a problem that threatens to unseat the U.S. as the greatest economic power in the world.

Here is Politico reporting on CBO director Douglas Elmendorf’s recent proclamation that serious fiscal reform is necessary and our spending promises cannot be paid for:

The nation’s fiscal path is “unsustainable,” and the problem “cannot be solved through minor tinkering,” the head of the Congressional Budget Office said Thursday morning. Doug Elmendorf, best known for arbitrating the costs of various health care proposals, added his voice to a growing chorus of economic experts who predict dire consequences if political leaders don’t scale back spending, increase taxes or both — and soon.

Last week, Federal Reserve Chairman Ben Bernanke made a second foray in recent weeks into fiscal policy to warn about what‘s in store for the country if politicians wait to act:

Although sizable deficits are unavoidable in the near term, maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance… Timely attention to these issues is important, not only for maintaining credibility, but because budgetary changes are less likely to create hardship or dislocations when the individuals affected are given adequate time to plan and adjust. In other words, addressing the country’s fiscal problems will require difficult choices, but postponing them will only make them more difficult.

Finally, here are Roberton Williams and Rosanne Altshuler of the Tax Policy Center, explaining why raising taxes could not solve the problem:

Couldn’t we get rid of the deficit by raising taxes? No. A study we conducted at the Tax Policy Center found that Washington would have to raise taxes by almost 40 percent to reduce — not eliminate, just reduce — the deficit to 3 percent of our GDP, the 2015 goal the Obama administration set in its 2011 budget… What if we raised taxes only on families with couples making more than $250,000 a year and on individuals making more than $200,000? The top two income tax rates would have to more than double, with the top rate hitting almost 77 percent, to get the deficit down to 3 percent of GDP. Such dramatic tax increases are politically untenable and still wouldn’t come close to eliminating the deficit.

There is near-unanimity among economists of all political stripes that America must get its fiscal house in order. The most sensible solution is to reduce government spending to a sustainable level. After all, it has grown from $21,000 to $31,000 (after adjusting for inflation) per household over the last 10 years.

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