The Keys To Dealing With U.S. Debt

The U.S. balance book doesn't look as bad as those of many European countries. But Alice Rivlin warns that if Washington doesn't raise taxes and cut spending, the country is headed in the same direction. Rivlin, the economist who was the first head of the Congressional Budget Office, is a member of President Obama's bipartisan debt commission, which met for the first time this past week. She tells host Guy Raz that any solution will involve pain; the key is to create just a little pain in a lot of places.

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GUY RAZ, host:

Now, if Europe's debt crisis seems bad, consider this: America's debt is projected to reach 90 percent of our entire economic output by the year 2020. According to the Congressional Budget Office, the debt will hit $20 trillion that year. Your household share of that: $170,000.

So to prevent that from happening, the White House put together a bipartisan commission to come up with solutions and ideas, and they're considering everything from tax increases to spending cuts.

Former CBO director Alice Rivlin is a member of that commission. Welcome.

Ms. ALICE RIVLIN (Economist; Co-Chair, Bipartisan Policy Center, Debt Reduction Task Force): Glad to be here.

RAZ: You've described the debt as an imminent threat. President Obama has been saying that all options must be on the table to address this problem. What is it going to take to rein in this massive federal debt?

Ms. RIVLIN: Well, first, it isn't the debt itself that's such a threat. It's the fact that it is rising faster than our economy is growing. And as we look ahead, it's on track to keep rising faster than the economy is growing. That's what the threat it. We're not Greece, but we could face a situation in which we simply couldn't borrow that much, and that would be pretty dire for our economy. So we have to do something.

RAZ: Well, when could that happen? I mean, how long will it take until we get to that point?

Ms. RIVLIN: We don't know, but it's worrisome because we used to think we had a serious problem going forward because Social Security and Medicare and Medicaid were rising faster than the economy was growing and faster than revenues would grow at any reasonable set of tax rates.

So we knew there was a problem out there, but we used to think it was far away, and now it's not so far away. And in addition, we used to think that our ratio of debt to the economy was not all that high. So that gave us a little bit of breathing room. But since the recession and all of the measures that had been taken to combat the recession, we have a much higher debt-to-GDP ratio, as they say, than we used to have.

RAZ: What sort of ideas are out there that you think are particularly creative that could start to address this problem?

Ms. RIVLIN: We've had this problem looming at us for quite a long time and a lot of people working on it. I don't think there are going to be very many new ideas on the spending side.

We have to look at everything, not just the entitlement programs, in part because if you started cutting back on Social Security or Medicare, it would take a very long time to do it because you wouldn't want to cut people who are already retired or expecting those benefits.

So that doesn't happen quickly, although it's got to be part of the solution. We've got to look at defense. We've got to look at discretionary spending, and we've got to look at the tax side.

The creative part is to get a package which hurts a little bit in multiple dimensions; and remember, the more painful thing is not doing it and getting into a situation where we face default on the debt or a very rapidly rising interest rate, rapidly rising debt service, meaning we have to pay a lot of tax money in interest rather than get something for it, and that could be very, very serious.

RAZ: That's Alice Rivlin. She's a member of President Obama's debt-reduction commission. Alice Rivlin, thanks so much for joining us.

Ms. RIVLIN: Thank you.

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