WASHINGTON-The U.S. debt, $9.5 trillion in 2010, could reach $25.9 trillion by 2021 if not kept in check. This was the warning of Erskine B. Bowles, former White House chief of staff, and Alan K. Simpson, former Senator from Wyoming, who are co-chairs of the National Commission on Fiscal Responsibility and Reform, speaking at the Investment Company Institute's General Membership Meeting here.
"We want to bring the debt down to $16 trillion by 2021," Bowles said. "When Alan and I started this, we first thought we were doing it for our 15 grandkids. We then thought it was for our children, and soon realized we are doing this for us. If we do nothing, it will be a catastrophe that will make the financial crisis we just went through look like child's play. Availability of capital for businesses will be strained and interest rates will spike. The debt is the most visible fiscal crisis of this country, almost like a cancer that will destroy us from within.
Thus, the Commission has proposed spending cuts to get the federal budget to 2008 levels by 2013 "so as not to disrupt a fragile economy," Bowles said.
The Commission aims to achieve this by reducing the debt by $4 trillion over the next 10 years, Bowles said.
In succeed in bringing the debt to $16 trillion by 2021, the Commission plans to cut the discretionary budget by $1.7 trillion, equally proportioned between defense and non-defense. That translates to $500 billion in defense cuts, $500 billion in healthcare cuts, $250 billion in mandatory spending cuts and $300 billion in Social Security cuts.
"I am positive that we must bring healthcare spending into control," Bowes said. "Medicare and Medicaid costs make up 6% of GDP and are fast approaching 10%. We want to bring healthcare costs to GDP plus 1%."
To put the debt in perspective, Bowles said that 100% of the federal revenues last year went to mandatory spending and interest rates.
All of the money for education and infrastructure came from money borrowed from other nations. If the government takes no action to control the debt, interest rate payments will be $1 trillion a year, he said.
Cuts are necessary, Bowles said. "Even if we had double-digit growth and increased taxes, the debt problem would not be solved. "We would have to raise individual tax rates to 70%, corporate rates to 80% and capital gains to 50%.
"When we first sat down with the president to discuss this issue, we told him everything is on the table-including Social Security," Simpson said. "We hit everything. It's not about cutting Social Security. It's about protecting its solvency. If you do nothing, by 2037, you'll waddle up to the Social Security window for checks that will be 22% less."
Even programs in the Defense Department need to be eliminated, Simpson said. "The Defense Department told us that it is non-auditable because it doesn't know what is in it. And here's an example of waste. There are 2.2 million military retirees who have their own healthcare plan. The premium is $475 a year, but it costs the nation $53 billion a year. These are the types of issues we have to deal with, and we won't allow emotion, fear, guilt or racism to prevent us from solving this issue."
Simpson added: "We have to have the guts to tackle Medicare, Medicaid and defense spending. It's hammer time."
Bowles concluded: "I am convinced we will do the right thing, get our fiscal house in order and be able to compete with any country in the world. If we don't, we'll become a second-rate nation."