Winnipeg Free Press - PRINT EDITION

The cure for U.S. 'cancer' gathers dust

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Washington's ruling Democrats and opposition Republicans enjoyed this month's fiscal crisis so much they have already scheduled the next one. The administration's spending authority will run out on Jan. 15 and its borrowing authority will run out on Feb. 7. If the winter crisis is managed better than the autumn one, it could be a chance to move the country toward sustainable public finances.

Republicans enjoyed the crisis -- some of them, at any rate -- because it gave them a chance to voice their detestation of President Barack Obama's health insurance reform. Democrats enjoyed it because they won the war of nerves, forced the Republicans to back down and made no concession. But the country's underlying problem of expanding deficit and growing debt still stands. The world can see the fiscal cancer that threatens America's power.

That fiscal cancer consists of a chronic excess of expense over revenue. The gap is so wide mere economic growth cannot bridge it. Someone has to find the package of revenue increases and expense reductions Congress will approve and will reduce the U.S. government's reliance on the good opinion of lenders.

One such package was proposed in December 2010 by the National Commission on Fiscal Responsibility and Reform, known for its co-chairmen as the Bowles-Simpson commission. At the time the commission wrote, federal spending came to 24 per cent of gross domestic product while tax revenues were 15 per cent of GDP. The government had to borrow the difference -- nine per cent of GDP, an amount that must grow every year.

The commission's plan would increase government revenue to 21 per cent of GDP, bring spending down to that level and reduce debt to 60 per cent of GDP 10 years hence. U.S. federal government debt is now about 100 per cent of GDP. The commission wanted to cut the sacrosanct defence budget, cut budgets of the White House and Congress, reform the federal tax code to eliminate loopholes, cut farm subsidies, end cost-of-living increases in government pensions and make a long list of other cuts.

Almost everyone in America found something unwelcome in the commission's plan, and it was voted down in Congress. But in the three years since the commission issued its plan, no one has come up with a better idea. Defence lobbyists have defended their corner of the budget, opponents of health reform have made their case, beneficiaries of tax loopholes have defended their privileges. The net result is the debt cancer just keeps growing.

The Republicans in Congress decided President Obama's health-insurance reform was America's greatest problem and they used the October fiscal crisis to make that case. They failed, and they may now recognize the program has wide support and is likely to continue until some future administration dismantles it.

The Bowles-Simpson commission made a strong case America's problem does not lie in one government program: It lies in the whole cost of government and the inadequacy of the revenue to cover that cost.

Canadians, living under the shelter of American power, enjoying the fruits of American innovation and American economic dynamism, will be anxiously watching for signs Congress and the administration have a good grasp of the problem they have to solve. The politicians don't necessarily have to solve the whole debt problem now. But now that they have organized a fiscal crisis for January and February, it may be timely to step back and consider what matters most in U.S. government taxing and spending.

The administration clearly is not going to knuckle under to demands for repeal of the health-care reform. The Republicans clearly have no stomach for the adventure of defaulting on government debt. In these conditions, the best solution may be to have another look at the Bowles-Simpson plan and agree on some early steps toward its adoption.

Editorials are the consensus view of the Winnipeg Free Press’ editorial board, comprising Catherine Mitchell, David O’Brien, Shannon Sampert, and Paul Samyn.

Republished from the Winnipeg Free Press print edition October 24, 2013 A12

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