The chairmen of Obama's debt commission have outlined a plan designed to show that progress is possible in reducing the national debt – if Americans agree to make tough compromises.
The Democrat and Republican who cochair President Obama's debt commission haven't offered a magic fix for federal deficits, but they've tried to make one point loud and clear: Answers to America's fiscal challenges will involve "shared sacrifice."
Erskine Bowles (D) and Alan Simpson (R) outlined a plan this week designed to keep US public debt from growing out of control. It's also designed to show that major progress is possible if Americans agree to make tough compromises.
Yes, this means things like paying more in taxes and working longer before becoming eligible for Social Security checks.
"Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul," former White House Chief of Staff Bowles and former Senator Simpson write in their report. "That’s the promise of America: to give our children and grandchildren a better life."
The report casts the scale of the challenge in stunning relief: To halt the rise in the national debt, their plan involves nearly $4 trillion worth of deficit reduction between 2012 and 2020. That comes out to about $12,000 for every person in America.
To reach this target, Bowles and Simpson propose a mix of increased tax revenue (25 percent of the deficit-reducing moves) and spending cuts (57 percent).
With the fiscal "pain" comes gain, however. Those moves result in a windfall of $673 billion in reduced interest on the national debt, which accounts for the other 18 percent of the deficit reduction in their plan.
Within 24 hours of the plan's release on Wednesday, it was already the subject of furious debate, with critics on both the left and right, as well as skeptics who wonder if the co-chairs will be able to enlist support from other members of their own commission, let alone Congress.
Mr. Obama set up the bipartisan commission with the mandate that any formal recommendations (due on Dec. 1) must be agreed to by at least 14 of the 18 panel members.
Details of the plan aside, many finance experts see sound logic behind the premise of shared sacrifice.
Politically, repairing the federal government's fiscal health will require buy-in from both major parties and from voters who are wary of higher taxes and big cuts in federal programs.
Economically, many budget experts say, it's almost inevitable that federal spending, as a share of the nation's gross domestic product, must rise as baby boomers retire and a larger share of the population becomes eligible for Medicare. So it's hard to close the budget gap just with spending cuts.
On the other side of the economic coin, a plan that addresses the fiscal challenge mainly through tax hikes could choke economic growth.
"The gap we face is just too large to close if we declare significant areas of the budget off-limits," policy experts William Galston and Maya MacGuineas wrote in a recent Brookings Institution report, making their own set of fiscal fixes. "Moreover,... neither party is going to sacrifice only the areas of the budget it most cares about in the absence of corresponding concessions from the other side."
The Bowles-Simpson recommendations include an effort to cap federal spending at 21 percent of GDP. That's higher than its historical average, but a level that requires sharp spending discipline given the boomer retirement wave.
The co-chairs' report includes "illustrative" ways to squeeze spending, including a 10 percent reduction in federal payrolls (hiring two workers for every three who retire) and a cut in military procurement that's 15 percent below its expected path.
In the report, tax rates would not rise. (In fact, it presents one scenario that would lower rates on personal and business income.) Instead, tax revenue would increase mainly by eliminating deductions and tax credits or scaling them back.
It's always hard for members of Congress to agree on major tax and spending reforms. But the report comes as Washington is under new pressure to deal with the rising public debt. The issue is a top one for the tea party movement and fits into a wider public mood of fiscal restraint, which influenced congressional elections this month.
The recession and financial crisis have increased the already-large national debt. "We must stabilize then reduce the national debt, or we could spend $1 trillion a year in interest alone by 2020," Bowles and Simpson say in their report.