The following editorial firstappeared in the Miami Herald:
Brace yourselves. That was the main message to emerge last week from the president's deficit reduction commission.
Fed Chairman Ben Bernanke and White House budget chief Peter Orszag, among the lead witnesses, warned that a failure to cut federal deficits could permanently cripple the nation's prosperity.
Recent events in the money markets reinforce the gloomy forecasts. Last month, Moody's Investors Service served notice that top-rated U.S. Treasury bonds could be downgraded some day if the government can't stem the tide of red ink.
As if to prove the point, days later the Treasury briefly had to pay higher interest rates for its bonds - supposedly the safest of investments - than the most creditworthy private companies. In yet another sign of the dollar's weakness, China and Japan are showing less enthusiasm these days for buying U.S. debt.
Translation for crisis-doubters: It's later than you think.
Avoiding a debt disaster won't be easy because the options are politically toxic. There are only two ways to cut the deficit - raise more revenue or reduce services - and partisans on both sides are gearing up for a no-holds-barred fight.
"Take Social Security Off the Table for Deficit Reduction," said the powerful seniors' lobby AARP. On the other side, some House Republicans were equally insistent: "The commission's first act should be to take tax increases off the table," said Rep. Patrick McHenry, R-N.C.
Either move would spell failure.
The amount of money that needs to be cut from the deficit in order to reach a "safe" level equal to 3 percent of the national economy is $250 billion or more annually, a huge number. "Raising taxes on the rich or corporations, closing tax loopholes, eliminating wasteful or low-priority programs and prohibiting earmarks simply won't be enough," Urban Institute President Robert Reischauer told the panel.
In short, there are no silver bullets.
Uncontrolled entitlement spending is spiraling upwards, meaning that Social Security, Medicaid and Medicare must be adjusted so the federal government can make ends meet.
By 2020, due mostly to Medicare and Social Security, spending increases will raise the annual cost of interest on the debt from $209 billion this year to $916 billion - representing a huge transfer of wealth to creditor nations.
Tax increases and cuts to entitlements both have to be on the table. Effective tax rates have been declining for years. They fell to 18 percent of gross domestic product in 2008 and to a 60-year low of 15.1 percent of GDP in 2009 (thanks to the recession). The value-added tax that some people advocate is regressive and affects low- and middle-income earners the hardest, but new gas taxes and other forms of revenue must be considered.
President Obama has rightly refused to take tax increases off the table. But unless everyone else is willing to make the politically tough decisions, disaster is inevitable.