WASHINGTON, D.C. -- "We're not that far away from getting a debt deal."
That is the unequivocating opinion of former U.S. senator Judd Gregg (R-NH) and echoed by former U.S. senator Kent Conrad (D-N.D.) at the general membership meeting of the Investment Company Institute. Both men are former chairmen of the Senate Budget Committee and progenitors of a plan for reshaping the U.S. finances known from the National Commission on Fiscal Responsibility and Reform, often called the Simpson-Bowles plan.
Closing the nation’s $1.1 trillion annual deficit isn’t as daunting as current negotiators have made it look, by Conrad’s numbers.
The key number: 4.5%, in his view.
Increase the nation’s intake – its tax revenue – by 4.5% a year and cut spending on the nation’s massive commitment to provide healthcare benefits to its aging population by 4.5% a year.
This is necessary “if we are going to meaningfully close this gap,’’ Conrad said.
Unchecked, the nation is leading to a “totally unsustainable future” where the nation’s debt gets to 200% of its gross national product by mid-century.
Medicare, Medicaid and other health care programs have gone from 1.1% of national spending to 5.5% now and is heading toward 12.4% by mid-century, as well. And accelerating costs of medical care is not the big driver, Conrad said. Instead it’s unavoidable maturing of the American population.
The foreign minister of Australia, Gregg said, noted that this nation is “one debt deal away” from leading the world out of recession.
But that will mean cutting spending on entitlements such as Social Security, as well as health care costs. And simplying the tax code, so that it encourages investment and growth. In so doing, tax revenue will gain ground.
If a debt deal gets done, "this economy is going to explode," Gregg said.
A key: Getting President Obama and the Senate to agree on a plan, and then get it presented to the House.
The president has shown the willingness to get engaged, they both said. Their proof point: His advocacy of changing the inflation rate underpinning cost-of-living adjustments to federal benefits from the long-used Consumer Price Index.
The alternative, known as the chained CPI, adjusts for adjustments consumers make when confronted with higher costs. If they the price of one staple rises and another does not, the index catches the substitutions that consumers make.
If we can put this "one issue behind us," things will look very bright for us as a country, Conrad said.