Wessel: Prudent Politicians Would Focus on the Long Term, Today

In his column in today's Wall Street Journal and an accompanying audio clip, David Wessel takes on the question before Washington: Is the budget deficit falling, or does it pose a serious threat to the nation's prosperity? His answer: Yes to both. On one hand, the budget deficit is shrinking, due in large part to the recovering economy but also due to some of the savings lawmakers have enacted over the past year. On the other hand, the federal debt remains a high level and will begin to rise as a share of the economy after 2018.

As baby boomers retire and health care costs continue to grow, pressures on the debt will escalate leading to a dangerous upward trend, as the chart below shows, particularly in the second decade. 

^{Source: CRFB
Note: Based on CBO's old GDP numbers}

As Wessel notes, debt is far beyond the historical average, which gives us far less flexibility until debt returns to more normal levels - a concept we refer to as fiscal space. In addition, deficit reducing policies have a greater chance of success if they are phased-in gradually. Without some lead time to allow taxpayers, agencies, and beneficiaries to adjust and slowly phase-in these policies, the needed changes could invoke unneccessary pain. With the long-term problem well established, Wessel argue that lawmakers need to be prudent and anticipate the coming problem. Writes Wessel:

Prudent politicians would be aiming to gradually reduce the debt burden, both by money-saving changes to benefit programs and money-raising tax policies and by doing what's necessary to quicken the long-run pace of economic growth.

It's natural to focus on next year's appropriations, but they are not related to the long-term problem. While recognizing the deficit reduction savings enacted to date, Wessel criticizes the focus on the discretionary portion of the budget which is neither large nor growing in comparison to the entitlements. We made this same point recently, arguing that our growing debt can be entirely attributed to growing entitlement costs as the population ages and health care costs continue to rise.

Prudent politicians would be making changes today that will reduce the share of the budget that goes to interest 10 years from now.

And then there are the immutable demographic facts. America is aging, which means more folks on Medicare. And health-care costs per person continue to rise faster than most everything else...Prudent politicians would be seeking ways to slow health-cost growth and temper the costs of the retirement of the baby boomers.

Unfortunately, until recently, Congress has not been taking Wessel's advice:

So what is Congress doing? Heading for a fiscal showdown this fall, and perhaps a government shutdown. But that fight isn't about any of the above issues. It's over how much to spend on the one-third of domestic and defense outlays that are appropriated annually, spending that is not driving deficits.

Thankfully, there are some signs that Washington may again be turning to a comprehensive deal that addresses our long-term problem. In the fiscal discussions ahead, we expect that the President and Congress will use the opportunities ahead to work out a bipartisan compromise on entitlement and tax reform. The debt problem may feel far off now, if lawmakers kick the can now and wait until the last minute to make changes, they will regret not taking on the issue earlier.

Click here to read the full editorial.