A couple of months ago, the Congressional Budget Office issued a sobering report on the U.S. economy’s long-term prospects. Not to put too fine a point on it, we’re headed for the fiscal rocks.
Federal spending accounts for about 20% of the nation’s GDP, the budget analysts note; if current trends continue, that will rise to fully 25% by 2040. Revenues will not keep up - they’ll amount to only 19% of GDP. This will ultimately raise federal debt, the CBO said, “to a percentage of GDP seen at only one previous time in U.S. history - the final year of World War II and the following year.”
We face a fiscal crisis of historic proportions.
Our presidential candidates can talk all they want about American prosperity and world leadership, but without a firm fiscal base it’s just hot air. Unless we can stabilize the debt and put the country on a path of sustainable economic growth with prosperity evenly shared, we’ll have no firm economic base for all those lofty goals to rest upon.
This means tackling a host of complex problems. We have to get long-term debt under control. We have to preserve Social Security yet find a solution to rising entitlement spending. We have to deal with health-care costs. We have to invest in skills, education, and infrastructure without breaking the bank. We have to craft a less intrusive tax policy that is conducive to long-term growth.
All issues will have to be on the table, because the pain needs to be shared broadly. And progress will require bipartisan participation, since neither cutting spending nor boosting revenues alone will solve our problems.
Political leaders should grasp these realities and act now. But they have not, so it’s up to the American people to demand action. We have to create the political will that drives our leaders to deal with these difficult economic problems - that leads them to tackle entitlements, health costs, investing in the future, and tax reform.
The question is whether our political leaders are up to the task before our economy runs out of time.
Lee Hamilton is Director of the Center on Congress at Indiana University; Distinguished Scholar, IU School of Global and International Studies; and Professor of Practice, IU School of Public and Environmental Affairs. He was a member of the U.S. House of Representatives for 34 years.