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Alarm over U.S. debt creates 'window' for tough choices

By Richard Wolf, USA TODAY

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November 29, 2010 | comments

RACINE, Wis. — If Americans aren't prepared for the hard choices needed to control the national debt, most voters here must have missed the memo.
The local Republican congressman, Paul Ryan, campaigned for re-election by calling for reductions in the growth of Medicare and Social Security. He won with 68% of the vote.

Ryan's landslide in a southeastern Wisconsin district formerly held by Democrats may be a testament to the national mood when it comes to red ink, budget watchdogs and local business groups say. As President Obama and Congress turn their attention from energizing the economy to balancing the budget, even sacred items such as retirement programs will be fair game — something Ryan tells his constituents regularly.

"They know that he talks straight," says Michael Kobylka, president of the Racine Area Manufacturers and Commerce, the local business coalition. "It's those third-rail issues that nobody has wanted to talk about that are part of the problem."

If the Tea Party movement that helped sweep Republicans to greater power this month is to have an impact in Washington, getting control of the national debt would be a logical place to start. A bipartisan presidential commission reports its findings Wednesday, Obama delivers his proposed 2012 budget early next year, and Congress must vote to raise the $14.3 trillion debt limit before it's breached next spring.

Cutting the deficit and debt is the preferred prescription for the economy among 39% of Americans, a USA TODAY/Gallup Poll conducted Nov. 19-21 shows. That tops other options, including raising taxes on the wealthy, cutting taxes and increasing stimulus spending.

"We are in a unique, historic moment in American politics," says Pete Peterson, a former Commerce secretary under Richard Nixon who's investing millions of dollars in hopes of prodding politicians to act. Voters, he says, are saying: "Enough of the empty talk. Enough of the painless solutions at a time that clearly demands sacrifice.

"I would ask both parties: Are you listening?"

For years, the debate in Washington has focused more on who's to blame than how to fix it. The Bush tax cuts, the 9/11 terrorist attacks, and the wars in Afghanistan and Iraq all contributed to rising deficits. Then came the recession, which sapped the government of tax revenue. Democrats' prescription for the recession — $814 billion in new spending — added to the deficit.

The political upheaval that occurred Nov. 2 has left Obama weakened, Democrats clinging to a narrow Senate majority and Republicans firmly in control of the House, where most fiscal policy begins. Dick Armey, chairman of the conservative group FreedomWorks that has helped lead the Tea Party movement, says new GOP members will insist on dramatic spending cuts.

"This is about drawing a distinction with Obama," says Ohio Gov.-elect John Kasich, a Republican and former chairman of the House Budget Committee. "There's a window now for making changes and reducing the size and scope of government."

That incentive extends to the Democrats as well. Erskine Bowles, co-chairman of the president's fiscal commission and former White House chief of staff to Bill Clinton, says "the era of deficit denial is over."

"The only incentive for elected people doing this is, it has to be done," Bowles says.

'Show-me time' for Obama

Peterson's foundation and a cottage industry of groups advocating a frugal future back up their case with statistics:

  • The $13.7 trillion national debt is hurtling toward the size of the entire gross national product; it's gained nearly $1 trillion since the commission began its work in April.

  • Just the $220 billion interest on the debt equals government spending on veterans, homeland security, education and transportation combined. By 2020, annual interest on the debt could be nearing $1 trillion.

  • Baby Boomers will begin turning 65 in January. They're living longer and requiring more care, the costs of which are rising faster than inflation. Medicare's projected 75-year obligation, according to the Treasury Department: $38 trillion.

But where to make the cuts? During Obama's first two years, White House economic adviser Jason Furman notes, the president has proposed a three-year freeze on non-security spending and a law requiring Congress to keep new spending or tax cuts deficit-neutral. The health care law signed this year is projected to cut the deficit by $138 billion over the next decade.

Some leading economists argue cutting the deficit shouldn't even be a priority. For now, U.S. Treasury bonds remain a hot commodity on world markets. Lawrence Mishel of the liberal Economic Policy Institute is among those who favor more deficit-financed government stimulus to create jobs.

Others say the rising debt is sure to fuel a crisis similar to those in Europe, in which rising costs of capital and hyperinflation leave the nation vulnerable. "It will be very swift and very dramatic, like in Greece or Ireland," says former Wyoming GOP senator Alan Simpson, co-chairman of the president's fiscal panel.

For Congress, target No. 1 is earmarks, the parochial programs and projects that lawmakers insert in spending bills for their states and districts. Wiping them all out, as Republicans have vowed to do this year, would save about $16 billion — less than half of 1% of the $3.8 trillion budget.

On the flip side are bold proposals coming from outside government. The Bipartisan Policy Center, an independent group examining the debt, this month proposed nearly $6 trillion in savings over 10 years, with controversial ideas such as imposing a 6.5% national sales tax and capping Medicare's growth by giving beneficiaries vouchers to shop for less expensive coverage.

The leaders of Obama's fiscal commission suggested killing every tax break on the books, from the child tax credit to the mortgage interest deduction. Going after the sacrosanct home ownership tax break has failed in the past, in part because of the real estate lobby. The National Association of Realtors says losing the tax break would cut demand for home ownership, reducing home values an average of 15%.

Those proposals landed with a thud in Washington. Democratic House Speaker Nancy Pelosi called the chairmen's proposal "simply unacceptable" because of cuts to Social Security and Medicare. Republican Rep. Dave Camp, who will take over the House Ways and Means Committee next year, said, "The notion that we must raise taxes to solve our debt and deficit problems is just wrong."

The USA TODAY/Gallup Poll, however, shows most Americans are willing to consider both tax increases and benefit reductions to deal with the rising cost of entitlement programs. Nearly half favored a combination, while 30% wanted only tax increases and 19% wanted only cuts in benefits.

Into the breach, leading budget watchdogs say, Obama must step. "You know, it's show-me time," says David Walker, the former head of the Government Accountability Office now leading the Comeback America Initiative, which focuses on fiscal solutions. "The president has to lead."

Future looks 'very scary'

The nation has tackled fiscal challenges before: In 1983, it extended the solvency of Social Security. In 1986, it transformed the tax code. In 1990, 1993 and 1997, it reduced deficits, helping to usher in four years of budget surpluses.

What's different this time: The problem is much worse, and the nation is much more divided.

"The future looks very scary — in fact, more scary than it did in 1990 or '93 or '97," says Alice Rivlin, former head of both the White House and congressional budget offices and the only person on both the presidential and Bipartisan Policy Center panels.

Her panels and others have laid down markers this month for the White House and Congress to follow. In the past, proposals such as freezing defense spending for five years, increasing Medicare copayments or raising the Social Security retirement age from 67, which it will reach in 2022, to 68 or 69 would have been political suicide. Now politicians such as Ryan are winning election in part on budget-cutting platforms.

"People are ready for an adult conversation, they're ready for the truth, they're ready for solutions no matter whether they agree on every detail or not," says Ryan, 40. His fiscal "Roadmap for America's Future" — which features dramatic changes that could boost Medicare costs and reduce Social Security benefits for Americans now under 55 — was endorsed by dozens of candidates in this year's elections. "This is no longer the third rail it was once thought to be."

Even so, the nation's capital is full of skeptics who have fought to reduce red ink for a generation.

"Until you put down your sheet of paper with the items that you're going to cut on it, it's not real," says Robert Reischauer, president of the Urban Institute and former director of the Congressional Budget Office, who helped craft the 1990 and 1993 deficit-reduction deals.

To help prod the politicians, groups led by the Peter G. Peterson Foundation are promoting fiscal rectitude with snappy ad campaigns. The latest TV ads from Peterson's "OweNo" campaign feature fictional presidential candidate Hugh Jidette (sounds like: huge debt), who promises more borrowing heaped on the backs of tomorrow's taxpayers.

Within hours of that campaign being unveiled Nov. 9, liberal activists fired up the opposition. Under the headline "Owe No You Don't," a coalition of labor unions and groups representing seniors, women and people with disabilities vowed to fight back. They began a petition drive on the Internet and set Tuesday as a day for people to call members of Congress urging them to protect Social Security and Medicare.

"There is a huge momentum now for those who say the deficit is the most important priority. That's a Washington momentum," says Roger Hickey, co-director of the liberal Campaign for America's Future, a member of the "Owe No You Don't" campaign. In its anti-Washington fervor, he says, "the public thought they were voting about jobs."

Mixed reviews in Racine

Jobs are needed in Racine, where the unemployment rate is 8.4%. Ditto Janesville, Ryan's hometown, where the rate is 9.5% — higher than Wisconsin's average of 7.8%, and just below the national 9.6% rate.

It is a classic swing district: Democrat Les Aspin represented it for 22 years before leaving to become Bill Clinton's first Defense secretary, Obama carried it narrowly in 2008, and Ryan has swept to victory since 1998, never with less than 57% of the vote.

"Congressman Ryan has shown you can talk about entitlement reform and politically live," says native Brian Riedl, a budget expert at the conservative Heritage Foundation.

Ryan's "roadmap," displayed in the window of his office here, was a hot commodity among GOP candidates this year, even though Republican leaders in Congress didn't endorse it. Several Republicans elected to the Senate, including Florida's Marco Rubio and Wisconsin's Ron Johnson, had kind words for it.

Not everyone buys Ryan's plan, least of all his Democratic opponent, John Heckenlively. The roadmap's cuts to Medicare and Social Security "was a topic that he actually preferred to avoid," Heckenlively says.

Slashing Medicare and Social Security to save them isn't always popular on the streets and in the restaurants of Racine. "That just takes money out of my pocket," says Gordon Olson, 50, a disabled iron worker on Medicare, while waiting for his cheeseburger at the popular Kewpee restaurant downtown. He voted for Ryan's opponent.

As for Social Security's retirement age going to 69, as Bowles and Simpson have suggested, "When do you stop?" asks Jo Ann Hattix, 53, of Racine, associate publisher of Who's Who in Black Milwaukee, who also voted against Ryan. "Next time, you're going to hear we've got to work until we're 80."

But Ryan's plan — sure to get a hearing in the House this year, since he will chair the Budget Committee — gets support from business leaders at the chamber's dinner one recent evening.

"I'd like to see more politicians talking honestly and specifically about it like Paul has," says Mark Patzke, president of Multi Products, a Racine company that produces gear motors.

"If we aren't willing to make those decisions," says Thomas Mahoney, president of Johnson Bank in Racine, "we're not ready to make any tough decisions."