“There are rare moments in this institution when you can implement fundamental change. This is one of them.”
–Sen. Evan Bayh, D-Ind.

President Obama is considering forming a bipartisan commission to reduce the nation’s increasing deficits. He needs to show leadership on this problem because it threatens his broader agenda. Specifically, the public, fellow politicians and financiers want a resumption of fiscal restraint once our economy recovers. To get Senate approval of the budget deficit ceiling, Obama might support a commission. The deficit could exceed $12.1 trillion this month.

Sen. Judd Gregg, R-N.H., and Sen. Kent Conrad, D-N.D, want to set up a 16-member task force — eight Democrats and eight Republicans. We need a bipartisan effort because of the tough decisions required to cut costs and raise revenues. At least 12 members would have to agree on any plan submitted to Congress.

The House and Senate then would have to approve the plan by a margin of at least 60 percent.

Sen. Gregg feels a White House commission would lack teeth. “You’ve got to look at their actions, not their words, and their actions are to massively expand the government.”

On the other hand, Nobel laureate Paul Krugman argues that cutting spending and raising taxes prematurely could abort the economic recovery.

Moderates of both parties want a reduction of the projected deficits of 5 percent of gross domestic product over the next decade.

Reducing the deficit to 3 percent of GDP in coming years — a number recently cited by Budget Director Peter Orszag as the administration’s goal — would require substantial changes. To reach this deficit goal in 2013, the government likely would have to eliminate about $250 billion from that year’s projected $775 billion deficit.

Treasury officials understand our predicament:

1. Trillion-dollar annual deficits for the foreseeable future

2. Refinancing a lot of our borrowings from abroad poses added risks.

3. The Federal Reserve is expected to raise interest rates when the emergency has passed.

The government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year. The federal budget deficit swelled to a post-World War II record of $1.4 trillion in fiscal 2009.

It will not shrink much in 2010.

The White House budget office has already asked each Cabinet department, except for defense and veterans affairs, to submit two budgets for fiscal 2011 — one freezing spending at current levels, the other cutting spending by 5 percent.

The New York Times reported that $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

The interest costs could rise even further if America loses its exalted AAA credit rating. Moody’s Investors Service has warned our “triple-A” rating will come under pressure if the Medicare and Social Security programs are not reformed.

Proponents of a tax increase argue that compared with other developed countries, the U.S. has a low tax rate. In 2007 the U.S. and Japan shared top billing as the least taxed developed countries.

Total U.S. tax revenues in 2008 equaled 26.9 percent of gross domestic product, according to provisional figures by the Organization for Economic Co-operation and Development. That figure — which includes local, state and federal taxes — was far below levels across Europe. In Denmark, the total tax take exceeds 48 percent of the economy. In France, it tops 43 percent; in Germany, 36 percent.

Bayh is correct that both parties should cooperate to make tough decisions on cutting costs and raising revenue. Mushrooming deficits are not sustainable over an extended period. Tom Friedman calls us “the grasshopper generation, eating through just about everything like hungry locusts.”

Originally published in the Sarasota Herald-Tribune