Retirement and Social Security Reform
The Nation's Imminent Debt Crisis Is A Matter
Of Choice - Obama's
Investor's Business Daily
March 27, 2010
By Ernest S. Christian and Gary A. Robbins
President Obama doesn't need the recently announced
National Commission on Fiscal Responsibility and Reform to
figure out how to prevent the debt from rising to apocalyptic
proportions and ruining America for generations to come. It's
not rocket science; it's a matter of presidential priorities
If the president opts to continue with the biggest ideologically
based spending spree in history - risk to the economy be damned
- federal spending for 2009-2020 will as a percent of GDP
increase by an enormous 23% (or more) compared to the Bush/Clinton
years, the government's gross debt (public plus internal)
will as a percent of GDP equal or exceed Greece's, and catastrophe
Some analysts say that America's AAA bond rating is already
in jeopardy and may be lost by 2014 at the latest.
In the alternative, if the president decides not to cavalierly
sacrifice America's prosperity (and standing in the world)
on the altar of his own ideological ambitions, he should at
the very least stop stoking the crisis. He should not deliberately
pile on top of the already bursting budget his extra $4.3
trillion of optional new spending in 2011-2020.
It's not for economic recovery (that's already provided for
in extra 2009 and 2010 spending), and existing social safety
nets are already automatically increased for inflation and
Instead, the extra $4.3 trillion is part of the long-term
cost of targeted social programs and transfer payments in
the president's expanding welfare-state policy agenda for
About $1.6 trillion of that extra spending can be saved by
stopping at the end of fiscal 2010 the long-term spending
increases enacted in 2009 under the umbrella of the American
Recovery and Reinvestment Act and other similar legislation.
Another $1.757 trillion of proposed new spending for refundable
tax credits and other transfer payments for 2011-2020 is disguised
by being buried in the "baseline" of the president's
budget. And another $881 billion of spending increases in
2011-2020 is proposed by the president for an array of programs
in the "mandatory" category.
If any of these spending increases is actually vital, surely
it could be paid for by sacrificing a bit of the political
pork that is stowed away in hundreds of underperforming federal
programs already in the $40 trillion that the president plans
for the federal government to spend in 2011-2020.
(When the Office of Management and Budget evaluated 900 federal
programs in 2007, spending exceeded performance levels by
$250 billion per year (or $2.5 trillion over a decade).
Post-recession spending restraint by the president does not
mean "cutbacks." Government would still be spending
at extraordinarily high and growing levels throughout the
Furthermore, insofar as the recession and its aftermath are
concerned, the Obama administration would still be spending
an astronomical, record-setting $6.7 trillion (or more) for
2009-10, including at least $850 billion on stimulus and other
arguably anti-recession spending this year.
If the president goes ahead and adds his extra $4.3 trillion
of spending, interest costs will increase by at least $952
billion and the public debt in 2020 will increase by at least
$5.2 trillion. Public debt in 2020 will be at least 77.2%
of GDP, even according to the president's own forecasts, and
the gross debt of the United States will be at least 107%
If one uses the Congressional Budget Office's more realistic
forecasts of interest rates, revenues and GDP growth, adding
the president's extra spending and debt is even more risky:
The public debt in 2020 will be 91% of GDP. The gross debt
will be 123% of GDP (compared with 115% to 125% in Greece
today) and greatly in excess of the "tipping point"
identified by Carmen Reinhart and Kenneth Rogoff in their
recent landmark study of worldwide data.
On the other hand, the president could decide not to put America
at such great risk and, therefore, to forgo adding the additional
spending and debt. In that case, the public debt would be
56% of GDP and the gross debt would be 85% (or, according
to CBO data, 68% and 100%).
A step-one decision by the president to forgo spending an
extra $4 trillion or so is not alone going to solve the nation's
spending and debt crisis, but it would hold it down to potentially
It would also be a dramatic step - like a shot heard round
the world - that would give some reassurance about America's
long-term financial future.
Right now, the president's fiscal credibility is low and America's
future is uncertain - the question being whether the president
is going to ruin the economy by continuing to run up the debt
or ruin it with massive tax increases.
Christian is director and Robbins chief economist of the
Center For Strategic Tax Reform.