Wise men (part two): Erskine Bowles and Sam Nunn discuss the dangers of the growing national deficit
By Maria Saporta
When it comes to understanding the problem with the nation’s deficit, few Americans are better qualified than Erskine Bowles and Sam Nunn.
Bowles co-chaired the Simpson-Bowles Commission, which had been established to make recommendations on how the nation should address the problem of its growing deficit. That effort, while hailed by public policy leaders around the country, has not yet been fully adopted by Congress or the current administration.
Former U.S. Sen. Nunn (D-Georgia) currently co-chairs the Concord Coalition, a non-partisan, grassroots organization dedicated to educating the public about the causes and consequences of federal budget deficits, the long-term challenges facing America’s unsustainable entitlement programs, and how to build a sound foundation for economic growth.
Both men were in Atlanta last Thursday speaking at exactly the same time about virtually the same topic. As promised in an earlier story, here is a more in-depth look at what they said.
Bowles addressed the third annual conference of Purpose Built Communities, which attracted representatives from 26 different cities interested in replicating the kind of transformational success that has been underway in the East Lake community.
“You are the people in these 26 cities who do make a difference,” Bowles told the gathering of about 200 people. “The work I’ve been engaged in is going to have an enormous impact on what you are able to accomplish.”
Bowles went on to say that the nation is facing “the most predictable economic crisis in history,” and the good news is that the crisis is also the “most avoidable.”
It’s not a matter of leaving the country well off for our grand-kids or even for our children. The nation’s debt is like a cancer that will impact people of this generation.
“Take all the revenues that came into the country last year. Every single bit of it was consumed by our mandatory spending and on the debt,” Bowles said. “Every dollar we spent last year on these two wars, national security, homeland security, education, infrastructure, housing and research — every single dollar was borrowed, and half was borrowed from foreign countries.”
For emphasis, Bowles repeatedly said: “This is crazy, and it doesn’t make sense.”
Then Bowles laid out the five big issues that need to be address so that the United States can get a handle on its deficit.
“The biggest challenge we face is healthcare,” Bowles said. “We spend twice as much as any other country on healthcare. That might be alright if our outcomes were twice as good.”
But instead, the level of healthcare in the United States is usually ranked 25th or lower among most nations. While 32 million people don’t have health insurance, they usually get healthcare in the nation’s emergency rooms, where the costs are greatest.
“In 1991, 10 percent of the budget was spent on healthcare,” Bowles said. “Today we spend 25 percent. And by 2020, it will be 30 percent. Healthcare is by far No. 1.”
The second challenge is defense spending.
“We spend more on national defense than the next 17 largest countries combined, including Russia and China,” Bowles said. “America is bearing a disproportionate share of providing world peace.”
Not only can the United States no longer afford to pay as much for defense. Bowles said that our top security problem today is our deficit. And to drive the point home, Bowles said that a treaty between Taiwan and the United States says that the U.S. will protect Taiwan if its ever invaded by China. “The problem is that we’ll have to borrow money from China” to live up to that agreement.
The third biggest challenge is leadership. Both presidential candidates — President Barack Obama and former Massachusetts Gov. Mitt Romney “are both close but neither has gotten to the promise land” on the issue of our tax code.
“We could not have designed a stupider one,” said Bowles, adding that the commission wanted to “broaden the base, simplify the code and get rid of all that back-door spending.”
Bowles believes a simpler tax code that removes tax breaks will help reduce the deficit. The commission suggested that the nation has to reduce its debt by $4 trillion — with $1 trillion coming from new revenues and getting rid of tax breaks while $3 trillion would come from spending cuts. A new tax system that encouraged companies to invest in the United States “would create dynamic growth.”
The fourth big challenge is Social Security, which if we do nothing, will go broke by 2033. Bowles said the commission made a few recommendations, such as raising the retirement age one year in 40 years and adding another year 65 years from now. If we “do little things,” we will be able to protect Social Security benefits for future generations.
Lastly, Bowles said the nation faces a challenge of “compound interest” payments.
Today we spend about $250 billion a year on interest. If we do nothing, Bowles said our interest payments could balloon to $1 trillion a year by 2020.
“This is just crazy,” said Bowles, who was speaking the morning after the first presidential debate.
“As I watched the debate last night, here is what drives me crazy. This is not a problem that we can grow ourselves out of…., and we can’t tax our way out of this problem, and we can’t solely cut our way out of this problem without disrupting what I call a truly fragile economic recovery,” Bowles said.
In other words. it will take bipartisan leadership and compromise to develop a plan that will reduce the nation’s debt by $4 trillion over the next decade.
“We have all got to put our own individual preferences aside,” Bowles said. “We have to make some sacrifice.”
Both Bowles and Nunn spoke about the fiscal cliff that is facing the nation at the end of this year when the Bush tax cuts expire and when a host of other economic policies kick in.
If the nation doesn’t start addressing these issues, Nunn said we will be on a “suicide mission.”
“I think we have pushed as close to the edge as we dare go,” he said, adding that political leaders “are more afraid of the political repercussions” rather than doing what’s best for the country.
“When you’re in a hole, the first rule is to quit digging,” Nunn said. “They’ve continued dancing around Simpson-Bowles. They are not yet ready to lead the country in an honest way.”
Instead, Republicans will say they don’t want any new taxes. And Democrats will say they don’t want any cuts to entitlements. As a result, “the arithmetic doesn’t work.”
As Nunn said: “You can’t do it (balance the budget) out of discretionary spending, and you can’t get there with just tax increases.”
Nunn said he is intrigued by an idea put forth by economist Marty Feldstein where one would cap home mortgage deductions or charitable donations to a certain percentage of someone’s taxable income — say 5 percent. That would permit taxpayers to continue getting some deduction for owning their homes or for charitable giving.
“I think that’s brilliant,” Nunn said. “We are not going to get out of this if every sacred cow remains sacred.”
Nunn then offered his own summary of the situation.
1. “Our fiscal policy is unsustainable and dangerous,” he said, adding that until we have some stability, the markets will not feel comfortable about the economy.
2. “Neither party is using common sense or arithmetic.”
3. “The D’s (Democrats) and the R’s (Republicans) that are trying to work together have very little support from the leaders of their own parties or from the White House.”
4. “Neither party is going to be able to completely impose its will on the other. Both parties have to find ways to work together.”
5. “Neither party has a governing strategy. They have a political strategy. The bottom line is that people have to start putting their country ahead of their party.”
6. “There has to be an honest dialogue from our leadership with the American people, and that has not yet occurred.”
Nunn then ended the interview by quoting Winston Churchill who said that America will always do the right thing after trying every other alternative.
“I believe we will do the right thing,” Nunn said.