Obama national debt plan: Will it all come down to taxes?
In a speech Wednesday, President Obama is expected to ask for 'shared sacrifice' – cuts and taxes – to rein in the national debt. But the GOP is adamantly against any new taxes.
Pablo Martinez Monsivais/AP
The venue is George Washington University, where Mr. Obama will give a midday speech Wednesday.
After much of his first two years were spent on policies designed to revive the economy from recession, this longer-term view has moved quickly to the political forefront. That's because of pressure from Republicans and the tea party movement, who are pushing the case for rapid and deep cuts in federal spending.
It's also because the Obama administration itself sees rising national debt as a danger to the economy – and on the immediate horizon unless the course is adjusted.
"Our [annual budget] deficits are too high, and they are unsustainable," Treasury Secretary Timothy Geithner told a House hearing in February. "Left unaddressed, these deficits will hurt economic growth and make us weaker as a nation."
But so far, Obama has left solutions largely in the arena of "let's work on it." His own budget proposal, released earlier this year, sees interest on the public debt more than doubling over the next 10 years, as a share of gross domestic product. Interest payments would cost $844 billion in the year 2021 alone.
The nation's public debt would grow during that time to an amount equal to 77 percent of a year's GDP, up from 62 percent last year and 72 percent this year. That increase would be a prelude to a bigger debt challenge – making budgets work in the following decade as costs related to baby boomer retirements surge.
All this has Republicans claiming that Obama isn't putting forward serious ideas.
"We are on a path of economic ruin," Rep. Paul Ryan (R) of Wisconsin said last week during House consideration of the Republican budget plan. "This is the most predictable economic crisis we've ever had in this country."
For their part, Democrats say that the GOP plan, while widely dubbed "serious" in media reports, is off track. The Republican plan centers around reductions in health-care entitlements, such as Medicare, and seeks to close the nation's fiscal gap without raising new tax revenue.
The Ryan approach parts company with a recent bipartisan fiscal commission, created by Obama, and other centrist proposals. Typically, those approaches have called for a blend of spending cuts and tax increases.
Obama is expected to argue the case for that kind of "shared sacrifice" in his speech.
If a nation's debt grows too big, it can cause a financial crisis, in which creditors balk at loaning more money and economic growth suffers. A key tipping point, some economists argue, comes roughly when public debt reaches 90 percent of GDP. The United States isn't there yet, but it is at a point where many economists say debt is no longer just a theoretical risk.
Finance experts see big benefits in acting to prevent a crisis sooner rather than later. It costs less to close the fiscal gap before the full burden of baby boom retirees is being felt in annual spending.
Although it's hard politically for the two parties to reach a consensus, potential agreement exists on a some fronts – such as the need for budget-process reform and a tax code that is simplified to foster better economic growth.