A much-heralded study from economists Reinhart and Rogoff spells out the danger. Countries with debt-to-GDP ratios beyond 90 percent suffer economically—losing a percentage point or more in GDP growth each year. America’s debt-to-GDP ratio has already crossed this threshold and will climb all the way to 107 percent in the budget put forward by the president.
Treasury Secretary Tim Geithner, testifying before this committee, called the Reinhart-Rogoff study ‘excellent,’ and even cautioned that ‘it understates the risks.’
Given the danger, you would think that Congress would end its spending binge. Non-defense discretionary spending has swelled 24 percent since the president took office—and that doesn’t even include the stimulus. But the president and Democrat leaders have opposed any meaningful action. Yet the Republican proposal to cut $61 billion this year earned more votes in the Democrat-controlled Senate than the Democrat proposal to essentially ignore the problem. We can disagree on specific cuts, but not on the need for a meaningful reduction. I believe $61 billion is a good number and will continue to fight for it.
Our longer term challenge remains entitlement reform. But for Congress to have any credibility on entitlements, our first order of business must be to trim our bloated federal bureaucracy—starting with a 15-percent reduction in Congress’ budget.
The conventional wisdom in Washington is that there is a limited amount of money we can save on discretionary spending. This is a convenient myth that protects lawmakers from having to seriously examine the wasteful spending they authorize year after year.
In your proposal, you recommend $2.1 trillion in discretionary savings over the next ten years, and don’t suggest any reductions this year.
I am much more optimistic about what we can achieve. I am confident we can find significant savings now in the discretionary budget, and that doing so will reap lasting benefits.
The first of these benefits is restoring investor confidence—thus creating jobs. Washington has promised many times to curb the deficit, but mere promises will not be taken seriously unless they are paired with credible action.
Another crucial benefit is that any reductions we make now will have a magnified impact in the years to come. For instance, just an initial reduction of $61 billion this year saves $862 billion over the next ten. And if we were to freeze that lower spending level in place for five of those ten years it would save $1.65 trillion.
Perhaps the most important reason to quickly trim our discretionary budget is the potential for a debt crisis. Erskine Bowles and former senator Alan Simpson appeared before this committee last week and said that such an event could happen within one or two years. Alan Greenspan offered a similar timeline. Three major credit agencies have all cautioned that they could downgrade our credit rating. The world’s leading bond investor, Pimco, has already sold nearly all its government debt.
Imagine if we had been given such clear warnings before our last financial crisis. The time for delay is over.
We have a critical opportunity to begin a new course and this CR is it. If we listen to the American people, if we impose restraint on Washington, we will strengthen our economy today and our country tomorrow. It has worked before and it will work again. America’s promise is not a thing of the past. We have a chance now to build an even better future.