The problem is real. The solution will be painful. There is no easy way out. Everything must be on the table. And Washington must lead.
-- The Moment of Truth, final report of the
National Commission on Fiscal Responsibility and Reform
If we do not take decisive action, our nation faces the most predictable economic crisis in its history. The current fiscal path we are on is simply not sustainable.
If we continue down our current path, public debt is projected to grow from a historical average of less than 40 percent of GDP, to nearly 100 percent by the end of the decade, a level not seen since just after World War II, and a level most economists find problematic.
Federal debt this high is unsustainable. It will drive up interest rates for all borrowers – businesses and individuals – and curtail economic growth by crowding out private investment and making it more expensive for entrepreneurs and businesses to raise capital, innovate, and create jobs.
Higher debt means the government will spend more money on interest payments, and therefore have less available for other important priorities. By 2020, we will be paying nearly $1 trillion a year in interest alone – much of it to our competitors.
In a worst-case scenario, investors could lose confidence that our nation is able or willing to repay its loans – possibly triggering a debt crisis, at which point the bond markets will force decisions upon us. If we do not act soon to reassure the markets, the risk of a crisis will increase, and the options available to avert or remedy the crisis will both narrow and become more stringent.
Delaying action will place the economy at greater risk and make the choices more painful. The Congressional Budget Office projects that if we wait ten years to act our economy could shrink by as much as 2 percent and spending cuts and tax increases needed to plug the hole could nearly double from what is needed today.
Looking into the next two decades, the retirement of the baby boomers and rising health care costs will make the situation far worse.
In addition to our debt problems, we have a budget that focuses too much on consumption at the cost of important investments, and an inefficient and complex tax code that encourages housing bubbles and health care cost growth instead of work, investment, and global competitiveness.