So how do we best solve the problem while averting a massive catastrophe which could sharply increase interest rates, cripple the economy and put many millions and millions more Americans out of work. This not to mention the crowding out effect on vital government services and the added pressure on defense, especially at a time when we’re facing the gravest threat to our national survival in our history.
1. Because Congress has proven utterly incapable of fiscally disciplining itself, passing a balanced budget amendment with a maximum target revenue cap of 18.5% of GDP is absolutely imperative and must be a condition of any debt increase other than one for 60 days or so to permit proper deliberations on the amendment, provided a conceptual agreement going in.
2. Any plan to zero out the annual deficit should not exceed 10 years, with a 50% reduction within 5 years. And in order to have any chance of passage and avert a debt default, spending cuts to revenue increases should be in a ratio of 3 to 1. The increases should be a combination of tightening tax loopholes and reducing subsidies. Thus spending cuts would total $1.125 trillion and revenue increases $375 billion, for a total of $1.5 trillion, the estimated amount of this year’s deficit.
3. Put Medicare and Social Security on a long-term, self-sustainable basis through a combination of premium increases and benefit reduction modifications. Medicare is presently running a some $380 billion annual shortfall, which is expected to rapidly increase.
If the politicians are unwilling to enact legislation very close to what’s outlined above, then I say let them default on the debt and suffer the consequences come the 2012 election. And let Republican presidential candidates as well as the President put their own solutions on the table now so voters can be better guided in 2012.
Most important for the moment, let us all recognize that the short-term consequences of defaulting on the debt, however painful and serious as they will be, will pale in comparison to those of failing to now deliver a responsible long-term solution.
There has never been a better, more opportune time to face the music on deficits, debt and budgetary reform than now.