Tuesday, April 27, 2010

more What I Read Today - Tuesday April 27, 2010

'Hi. My Name Is America, and I'm a Deficit Addict.'


The giant federal deficit and debt—the subjects everybody loves to talk about but nobody likes to do anything about—move back to center stage in Washington this week as a new debt commission gets rolling and a high-profile conference is convened.

Don't expect much to actually happen this year, an election year in which political leaders will grow increasingly allergic to making hard decisions. But here's a humble suggestion on how to make a nice start in addressing the nation's yawning deficit problems: The two parties could confess their original sins and acknowledge what needs to be done.

Congress needs to step up and tackle a broken income tax and retirement-aid system if it wants to deal with the nation's deficit, WSJ's Jerry Seib argues.

This suggestion arises in large measure because President Barack Obama's newly appointed, bipartisan National Commission on Fiscal Responsibility and Reform—let's just call it the debt commission—is to hold its first meeting on Tuesday.

Then, on Wednesday, the Peter G. Peterson Foundation, the nation's leading scold on deficit and debt, holds an all-star conference in Washington. Former President Bill Clinton, current budget director Peter Orszag, the chairmen of the new debt commission—Republican Alan Simpson and Democrat Erskine Bowles—and former Fed chairman Alan Greenspan all will be on hand. If earnest talk is enough to solve the debt problem, it will be fixed by 2:30 p.m. Wednesday.

Alas, earnest talk isn't enough. Political will and a modicum of bipartisanship are required. Most political will in Washington is devoted right now to prevailing in this fall's midterm election, and bipartisanship is rare as an empty New York cab in the rain.

So in practical terms the most one can hope for in coming months is a modest start. The presidential commission delivers its report to the White House in December, provided its Democratic and Republican members can agree on something. That's after the midterms, and nobody's required to do anything with the report even then.

But first steps can be valuable. We're dealing here with an addiction: The American government and—yes, let's be honest—the American people are addicted to deficit spending. Nearly everybody in America expects more from government than taxpayers will pay for.

And the first step in dealing with an addiction is to acknowledge your problem. So maybe both parties could start by being honest about what they've done recently to make this problem worse.

Republicans could acknowledge that they sinned in recent years by launching a giant new entitlement program during the George W. Bush administration—a prescription-drug benefit for Medicare recipients—without really paying for it. They prosecuted two wars, in Iraq and Afghanistan, without asking for either tax payments or spending discipline to pay for them.

For their part, Democrats should acknowledge that they have sinned in two big ways during the Obama administration. First, they set out to trim billions of dollars in prospective Medicare spending but used the money to expand health care for others rather than to extend the life of Medicare itself. And second, the president's pledge not to raise taxes on any family making under $250,000 is a straitjacket that creates the impression you can solve a problem of this magnitude while leaving about 95% of taxpayers off the hook.

If we want, we can also give the two parties credit where credit is due. President Bush at least tried to deal with Social Security's rising cost, at great political peril. The Obama administration insisted that its big health plan didn't add—at least directly—to the deficit; it also set up the debt commission by executive order when Congress balked.

With that as the backdrop, it would amount to progress if both parties, via the debt commission, agreed that two big steps can't be avoided:

• The tax system has to be changed. The U.S. doesn't have a system that can fund the government the country wants. The Tax Foundation says the levies paid by the top 1% of taxpayers now exceed those paid by all of those in the bottom 95%. And the Tax Policy Institute says almost half of all filers will pay no 2009 income taxes at all, because of various exclusions and credits—up, by some estimates, from a quarter in 1990.

This may be great for those who like soak-the-rich rhetoric, but it's no way to finance a country. More than that, it's a bit of a hoax on middle- and lower-middle-class Americans. They certainly pay payroll taxes, and the more they are excused from the income tax-system, the more likely it is that they will be hit with sneakier and less-progressive taxes. Tax reform—a flatter tax system, a value-added tax, something—is needed.

• Americans have to change how they think about retirement. When the economy recovers and costs for recession-related bailouts, stimulus spending and unemployment benefits are resolved, we'll still be left unable to really afford our Social Security, Medicare and long-term-care commitments. When the easier stuff is done, this is the hard reality, requiring a new and nonpoliticized national discussion.

Write to Gerald F. Seib at jerry.seib@wsj.com

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