Deficit fix painful, inaction's worse
But the results of inaction on the steadily growing debt threat are even most costly: fundamental damage to the U.S. economy and a lower standard of living for future generations.
The warnings from deficit hawks are much more urgent since the nation's fiscal health went from bad a couple of years ago to drastically worse with the financial crisis and recession of 2008 and 2009. Last year, the government borrowed $1.4 trillion, nearly 40 cents of every dollar it spent.
"The path forward contains many difficult trade-offs and choices, but postponing those choices and failing to put the nation's finances on a sustainable long-run trajectory would ultimately do great damage to our economy," Federal Reserve Board Chairman Ben Bernanke told President Barack Obama's 18-member deficit commission at its first meeting Tuesday.
As Bernanke testified, the stock market began a precipitous dive after Standard & Poor's downgraded the debt of Greece to junk bond status. The Mediterranean country is mired in a debt crisis that has shaken its economy and markets.
The United States is a long way from where Greece is. But U.S. deficits — like last year's $1.4 trillion — that continue to exceed 4 percent of the nation's total economic production are unsustainable, most major economists say. Such deficits would push interest rates higher, crowd out private investment and ultimately erode living standards.
"Substantial deficits projected far into the future could cause the market to rapidly lose confidence in the government's creditworthiness, producing a spike in interest rates and fundamentally disrupting economic activity more broadly," White House budget chief Peter Orszag said.
With interest payments on the debt growing without respite, future generations would have to pay for the lack of corrective action. That means higher taxes and fewer government services — and a potentially weaker economy.
"We know for a fact, it's irrefutable, that we're giving the next generation an inferior standard of living," said Rep. Paul Ryan, R-Wis. "We've never done that before in this country. You know, the legacy of this country has always been you take on the challenges before you to make sure that your kids and grandkids have a better life."
Tuesday's mantra, mostly among Democrats, was that all options should be on the table, which signaled that politically toxic tax increases will be under consideration.
"I'm not going to say what's in. I'm not going to say what's out," said Obama, who has promised repeatedly not to raise taxes on American families with incomes less than $250,000. "I want this commission to be free to do its work."
It's a task, though, that won't be easy: Produce a deficit no bigger than $550 billion by 2015, an amount equal to about 3 percent of the total U.S. economy. That would require deficit savings in the range of $250 billion or more.
Deficits have worsened largely because of a drop in tax revenues and increasing costs for safety-net programs like unemployment insurance due to the recession. Spiraling costs of federal health care programs also have been a major contributor.
The problem is too large to be handled with easy Washington chestnuts like cutting foreign aid and ending waste, fraud and abuse, undoing the Wall Street bailout or rescinding what remains of Obama's $862 billion economic stimulus bill.
"Spending cuts will have to affect programs we all care about and benefit from and revenue increases will have to come from a wide swath of Americans," Urban Institute President Robert Reischauer said. "In other words, raising taxes on the rich or corporations, closing tax loopholes, eliminating wasteful or low-priority programs and prohibiting earmarks simply won't be enough."
But summoning the political courage to propose, say, tax increases for a majority of Americans or making people work another year to qualify for Social Security benefits is far easier said than done.
Obama is but the latest example. His February budget was a cautious document that punted the tough decisions to his new bipartisan commission. And the panel's instructions are to deliver its recommendations after November's midterm elections.
"There are few issues on which there is more vigorous bipartisan agreement than fiscal responsibility," said Obama, flanked by former Clinton White House Chief of Staff Erskine Bowles and former Sen. Alan Simpson, R-Wyo., the two men he asked to head the panel. "But in practice, this responsibility for the future is often overwhelmed by the politics of the moment."