Strong medicine now or severe pain later

By The Gazette Editorial Board

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The Concord Coalition's Fiscal Wake-Up Tour came to the Corridor on Wednesday, especially timely given that President Obama delivered a speech on the same topic: our government's huge budget deficit and staggering national debt ($14 trillion-plus) and what to do about it.

And time is clearly of the essence. The nonpartisan Concord Coalition, which promotes fiscal responsibility and long-range planning, told us that tough medicine needs to be prescribed sooner than later in order to avoid severe austerity measures not far down the road.

Clearly, a crisis is looming. But will this Congress and president have the guts to make structural changes needed to right the fiscal ship?

Wars and recessions have factored into previous budget deficits many times, and are part of the current problem. But the situation we face today is not typical. The biggest underlying problem involves Medicare, Medicaid and Social Security, for which the president offered no fundamental changes. Those entitlement programs already consume 41 percent of the federal budget and are rising fast, primarily because of soaring health care costs accelerated by demands from the huge, aging baby boomer generation.

By the end of this decade, unless big spending/revenue changes are made, we likely will face:

l Annual interest costs, now about $200 billion, of somewhere near $1 trillion - more than we spend on defense.

l The amount of debt as a percent of gross domestic product, now at 61 percent, will top 100 percent. Already, half of our public debt is owed to foreigners. Ten years hence, who would lend to us and at what cost?

Wake-Up Tour members told us the health care reform passed last year could help control costs but it won't be anywhere near enough. They suggest stronger measures, many similar to those from the president's commission on fiscal responsibility and the Bipartisan Policy Center's debt reduction task force. Among the strongest:

l Gradually transition Medicare to a defined contribution program that limits the government's subsidy. Create a Medicare Exchange of various plans that provide incentives to save.

l Gradually begin taxing employer-provided health insurance benefits - long an exemption - so more cost-effective health plans are chosen.

l Reduce individual and corporate tax rates but eliminate most loopholes/deductions to broaden the base of payers and a simpler tax code promotes competition and economic growth.

l Tweak Social Security formulas modestly.

l Freeze defense and nondefense discretionary spending for several years.

Some big pain here. But if we keep putting things off, the pain is going to get a lot more intense.

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