Washington is gearing up for a big debate: What to do about the exploding national debt, the unsustainable annual budget deficits and what to do about the Bush tax cuts that expire at the end of the year.
Alarm bells are ringing over the size of the national debt, now equal to 84 percent of the country's gross national product -- the highest level since after World War II. The credit-rating agency Moody's is hinting that the federal treasury's Triple A bond rating is in jeopardy and Fed Chairman Ben Bernanke is warning that China, the United States' largest foreign creditor, may start charging higher interest rates.
"The arithmetic is, unfortunately, quite clear," Bernanke said. "To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above.
"These choices are difficult, and it always seems easier to put them off -- until the day they cannot be put off any more."
Economists say that if those choices are not made, the U.S. could become a second-rate power. But even before the debate about what combination of spending cuts and tax increases begins in earnest, the deficit has already become a political issue.
Republican candidates are using concerns about the debt, the deficit and taxes to help channel anti-government anger. President Obama, whose party is on the receiving end of that anger, is well aware of voters' demands for fiscal discipline.
He has proposed a freeze on discretionary spending and signed a law that restores the pay-as-you-go principle. He has also set up the National Commission on Fiscal Responsibility and Reform, a bipartisan, independent panel, to help solve the fiscal crisis and close the growing deficits.
The commission's first meeting is next Tuesday. On Dec. 1, safely after the midterm elections, it is supposed to present its consensus recommendations to the president and congress. Consensus seems impossible in this hyper-partisan political climate, but Bruce Reed, executive director of the commission, says there is a reason to be optimistic.
Pressure From The Public
"The American people are way ahead of the politicians on this one," Reed said. "There's a deep concern about the long-term challenges we face as a country and a real willingness on the part of Americans to do something about it.
"Americans have responded brilliantly to the economic crisis. They've saved more, spent less, and they want their leaders to do the same."
Individual families may have saved more and spent less at home, but the public still wants more from the government than it is willing to pay for. At present, tax revenues equal around 19 percent of gross domestic product and government spending around 25 percent. That gap will only widen when the bill for the baby boomers' Medicare and Social Security checks comes due.
Something has to give, says Republican Sen. Judd Gregg, a member of the commission.
"You're going to have to face up to the fact that you're going to have to reduce the rate of growth of the government, which means you've got to reduce the rate of growth of spending, which means people are going to have to accept the fact that the government can't do everything it's promising to do," Gregg said.
For a Republican such as Gregg the answer starts with cutting spending, though he says everything should be on the table. But spending cuts alone can't solve the problem. Neither can the preferred Democratic solution: tax increases on the rich. Exploding both those myths and bridging the partisan gap is the job of the president's commission. But even Obama's top adviser, David Axelrod, is downplaying expectations on what the panel can achieve.
"Our hope is that out of this will come proposals that we can forge bipartisan consensus about because there is no doubt that the deficit is a big looming cloud on our horizon and it's going to take bipartisan effort to deal with it," Axelrod said. "I don't know quite how the commission story will end, but I'm certain that we will be in a better place in terms of dealing with this issue for having gone through the exercise than if we had not."
It's hard to find anyone in Washington who is confident that exercise will result in the required 14 out of the 18 commission members reaching agreement. After all, that's a higher hurdle than overcoming a filibuster in the Senate. But even if it doesn't reach consensus, the commission should be able to identify the choices that Americans will have to make and the consequences of avoiding them.