With hours to spare, Congress sent a debt ceiling compromise to the President. As the August 2 deadline approached, the stops and starts in the negotiations created some tense moments-but did anyone really expect that Washington wouldnt wait until the last moment?
The President and Congress had to raise the debt ceiling to allow the federal government to pay its bills-bills it had already incurred or promised to pay. While some argued against raising the debt limit and letting the federal government juggle its finances to pay some of its bills, this strategy would not work. In fact, a government default on even some of its obligations would hurt everyone-businesses, investors, retirees, and those of us who rely on government services (and we all do to some extent).
While raising the debt limit was a necessary step, its clear that Washington also has to do something to rein in federal spending. Twenty years ago, it cost about $1.3 trillion to run our government. Today, it costs nearly three times that-an estimated $3.4 trillion this year. Our budget deficit this year is projected to be about $1.5 trillion; we are borrowing 44 cents for every dollar we spend from future generations. This kind of deficit spending is not sustainable and already has begun to threaten long-term economic growth. Given the historically high level of the federal deficit, it is imperative that policymakers look both at real and immediate spending cuts and structural changes that address the long-term deficit.
To the credit of Washington policymakers, the debt ceiling compromise does begin to address our deficit problem, with an immediate $900 billion cut in federal spending and at least $1.2 trillion more over the next two years. But this is just a start. We need further spending cuts that target both the discretionary and mandatory spending sides of the ledger, while also keeping in mind the priorities of a national government. National defense, for example, is one of the most important, if not the most important, functions of a government. Congress and the President must preserve our nations ability to defend itself and its citizens.
Congress and the President should also avoid taking steps that would stifle economic growth in their efforts to bring down the debt. Economic growth is an essential component of any plan to rein in our debt. Growth, for example, produces higher revenues-so we wont have to borrow as much.
In short, as Congress and the President look for ways to cut spending, they must avoid making the easy political choices and instead opt for a plan that upholds our nations priorities and puts us on a path toward a strong, growing economy.
With this latest Washington crisis behind us, Congress has left town for the rest of the summer. When it returns, it will face other matters of urgency. Congress still must pass the three pending free trade agreements. The research and development tax credit is set to expire. Manufacturers are waiting on Congress to do something about the harmful regulations coming out of federal agencies.
Congress should enjoy the break. Theres a lot to do ahead.