Getting serious about reducing national debt

As the nation struggles to revive a stalled economy, the Obama administration and House Republicans are on a collision course over whether to lift the $14.3 trillion debt ceiling before it expires on March 4. The two sides must reach agreement within days to avoid stifling the economic recovery that is barely under way.

The administration insists that there is no alternative to raising the debt ceiling. Failure would not only result in another government shutdown, but it would also cause panic in the bond markets. The president has both reason and Federal Reserve Chairman Ben S. Bernanke in his corner.

Just last week, Mr. Bernanke warned of the perils of ignoring the nation’s increasingly alarming national debt: “There is only so far that we can kick the can down the road.” But he also warned congressional Republicans that using the debt ceiling to negotiate immediate cuts in the current budget would be a disaster ― “not something you want to play around with.”

Failure to raise the debt ceiling would mean the U.S. government could not pay what it owes to bondholders, which would immediately drive up interest rates and dry up the credit markets. That would make it more expensive to borrow money and pay down the national debt. Fed chairmen are rarely given to the use of apocalyptic language, but Mr. Bernanke did not mince words: The implications for the financial system, he said, would be “catastrophic.”

Undoubtedly, the debt ceiling is a tempting tool to use against the executive in a dispute over the budget. Because the administration cannot afford to ignore the challenge, it must make some kind of deal. And surely Republicans are right to insist that the government must devise a serious plan to reduce spending. But in this instance, the cure would be worse than the malady and suggests a lack of seriousness about debt reduction.

Many Republicans, especially newcomers elected last year, want immediate cuts in the budget. That sounds reasonable. But everyone knows that the real money is in entitlements, and that the ultimate solution lies in a combination of increased revenue and lower spending. Mr. Bernanke last week endorsed the findings of a presidentially appointed fiscal commission as a good starting point for debate. Those plans call for reforming Medicare and Social Security and increasing tax revenue, though the specifics vary.

A growing minority in Congress has seen the light because the projected debt is too great to reduce with spending cuts alone unless popular programs and essential military spending get the axe. Sen. Saxby Chambliss, R-Ga., has formed an anti-deficit group with Sen. Mark Warner, D-Va., to promote the recommendations of the debt reduction panel. “Everything has got to be on the table,” he said. Unfortunately, at last count only 18 senators had joined the group.

For the moment, the spending plan unveiled by House Republicans for the current fiscal year has two big shortcomings. It contains too many drastic reductions ― huge cuts to education, housing, transportation and a variety of other essential programs ― yet it barely scratches the surface because it amounts to some $40 billion in a $1.5 trillion budget. Too much pain for not enough gain.

Mr. Obama needs to show more leadership on the issue of reforming entitlements. He missed a good opportunity in the State of the Union speech, barely giving the topic a passing mention. He cannot expect lawmakers, who are rightly sensitive to dealing with entitlement programs that the voters back home cherish, to get out in front if he is not willing to lead.

Both sides have been paying lip service to deficit reduction for too long. Next week, the president unveils his budget plan for the next fiscal year. It may be his last, best chance to show that he is serious about tackling this long-term threat to America’s future and wellbeing.

(The Miami Herald, Feb. 10)