Stabilizing U.S. debt is the greater of two G-20 challenges
An international push to cut deficits in half by 2013 may sound impressive, but the United States already is on track to meet that target without significant policy changes. The harder task for President Obama will be achieving a second goal adopted by the nation's largest economies over the weekend: stabilizing the soaring U.S. debt.
Official forecasts show the U.S. budget deficit plummeting as the economy recovers, tax revenue rebounds and spending on last year's economic stimulus package finally winds down.
"The short-term goal is neither particularly ambitious nor particularly relevant. You get most of the way there just from the economy picking up," said Robert Bixby, executive director of the nonpartisan Concord Coalition, which advocates deficit reduction. However, to rein in the debt, Bixby said, "they really are going to have to get into undoing some policies that are popular."
As in other advanced economies in the Group of 20 nations, which adopted the deficit goals in Toronto this weekend, U.S. government spending is being driven inexorably upward primarily by health spending and social safety net programs for the poor and a growing population of old people. U.S. taxes, meanwhile, remain extraordinarily low by international standards; in the most recent ranking of 30 developed nations, the United States had the fifth-lowest tax burden, as a proportion of economic output. Only Mexico, Turkey, South Korea and Japan had lower burdens.
Obama has acknowledged that reining in the national debt, which now exceeds 56 percent of the U.S. economy's annual output, may require changes to Social Security, Medicaid and Medicare -- and to a "tax system that is messy and unfair," as he said Sunday in Toronto. But Obama has sought to postpone that reckoning until after this fall's midterm elections, creating an independent, bipartisan commission to develop a long-term plan to rebalance the federal budget.
In the meantime, Obama is making the same argument on Capitol Hill that he took to Toronto: The most powerful means of deficit reduction is a growing economy. If businesses make money and individuals get jobs, they all pay more taxes and seek fewer government subsidies.
Europe's pivot toward government austerity is helping to fuel the anti-spending mood in Congress. Highly indebted European countries are slashing spending with varying degrees of urgency, depending on whether they have come under pressure from bond markets, such as Greece and Spain, or are working to avoid it, such as Britain.