By Ian Swanson - 11/15/09 06:18 PM EST
The U.S. is headed toward “third-class status as a nation” because of the budget deficit, according to the senior Republican on the Senate Budget Committee.
Sen. Judd Gregg (R-N.H.), in an interview on C-SPAN, said the biggest problem faced by the country is “the impending fiscal meltdown of our nation,” a risk he said is only exceeded by the risk of a terrorist attack using weapons of mass destruction.
Gregg, who earlier this year accepted and then turned down a request to join President Barack Obama’s administration, criticized a rush of government spending for adding to the debt. But he also said entitlement spending is the real long-term budgetary problem facing the country.
Last year’s deficit was a record $1.4 trillion, up more than $900 billion from the previous year. The budget was inflated because of much lower tax revenues, which were down because of the worst recession in generations, and government spending intended to stimulate the economy and rescue the financial industry.
That situation is not expected to improve soon given 10.2 percent unemployment that is expected to grow.
Two bills account for much of the increase in spending. Congress in 2008 approved a $700 billion bailout of the financial industry that was requested by the Bush administration. Earlier this year, the Obama administration moved a $787 billion economic stimulus package through Congress.
The bailout funds had bipartisan support; Gregg was one of a number of Republicans who voted to create the program. But the stimulus passed with only three GOP votes in the Senate, including Sen. Arlen Specter (Pa.), who switched to the Democratic party after the vote.
The administration seems increasingly worried about the deficit, and how it might play in next year’s elections in the House and Senate.
Obama on Sunday vowed to bring the deficit in order in comments at the Asia Pacific Economic Cooperation forum in Singapore.
“As the economy recovers, I intend to take serious steps to reduce America’s long-term deficit,” Obama said.
The Associated Press reported this week that the administration is telling agencies to brace for either a freeze in discretionary spending or 5 percent cuts.
Gregg said he would support a move to freeze discretionary spending, but warned Democrats it would not be difficult for the GOP to use the deficit as an election-year issue.
“We almost don’t have to do anything to explain it,” said Gregg. “This is not difficult to understand. We don’t want to be a debtor nation. We don’t want to be a third-class nation.”
The economy poses problems for Democrats in next year’s elections. The Cook Political Report already sees Democrats as losing 15 seats in the House
Trading partners including China have raised alarm about the U.S. deficit. China holds about $2.2 trillion in foreign currency reserves, most of which are in U.S. dollars. These purchases help finance U.S. deficit spending.
The U.S. is expected to hit its legal debt ceiling of $12.1 trillion as early as next month, and the Senate is set to consider legislation to raise the limit to $13 trillion.
Gregg joined other Republicans in arguing that the administration and Congress should rein in plans to move a a healthcare overhaul given the deficit, but Democrats, pointing to scores from the Congressional Budget Office, argue the healthcare legislation they are considering would help lower the budget deficit.
Obama also pointed out at the APEC meeting that he inherited a healthy deficit from former President George W. Bush.
Gregg argued Sunday that the CBO scores are based on rosy assumptions.
Gregg said U.S. financing of its increasing debt will force the county to either devalue the dollar or raise taxes significantly, adding that this would add “instability” in the country.
“We’re on an unsustainable path. It’s that simple,” said Gregg.