U.S. in fiscal peril with $12.1 trillion debt

By Richard Wolf, USA TODAY

WASHINGTON — After $787 billion in stimulus spending and $700 billion in bank bailouts, 2010 is fast shaping up to be the year of the federal budget diet.
Bipartisan support is growing in Congress for action to stabilize the nation's bulging debt, which is now $12.1 trillion. Influential experts from former Federal Reserve Board chairman Alan Greenspan to former comptroller general David Walker have joined the cause.

The public debt is the amount owed to individual investors, including foreign countries, but excluding money the government owes to its own trust funds. It has soared from $5.8 trillion to $7.6 trillion this year alone — and is more than half the size of the nation's economy for the first time since 1956.

Without action to reduce that unprecedented rise in red ink, lawmakers and experts say, Washington risks a fiscal crisis. The Congressional Budget Office projects annual interest on the public debt would be about $800 billion by 2019, but the Heritage Foundation's Brian Riedl and other analysts estimate it could surpass $1 trillion by then. Foreign creditors could refuse to buy more Treasury securities.

The focus is on the White House as President Obama prepares his State of the Union address and 2011 budget. Lawmakers and lobbyists seeking to cut the record $1.4 trillion budget deficit and stabilize the debt want Obama to back the creation of a commission that would recommend spending cuts and tax increases and require a vote by Congress. It's a process that has worked since the 1980s on military base closings.

Task force proposed

"This is a defining moment for this chamber, for this Congress, for this administration," said Sen. Kent Conrad, D-N.D., who came to Washington in 1986 when the deficit and debt were one-sixth their current size. "It is imperative that we find a way to deal with this debt threat."

Thirty-four senators so far favor creating a task force whose recommendations Congress would have to approve or reject. House Majority Leader Steny Hoyer and other House Democrats want to guarantee that every tax cut or increase in government benefits doesn't add to the deficit. The Peterson-Pew Commission on Budget Reform, a non-partisan group led by former representatives Bill Frenzel, Charles Stenholm and Tim Penny— a Republican, Democrat and independent — want to set future debt targets and enforce them with automatic spending cuts and tax hikes.

What's unusual is the number of proposals, the clout of lawmakers supporting them and the admission by Obama and congressional leaders such as Speaker Nancy Pelosi that the rising debt should be a priority. Greenspan, who presided over a commission in 1983 that helped rescue Social Security from looming bankruptcy, added his authoritative voice to the cause last week.

"The challenge to contain this threat is more urgent than at any time in our history," Greenspan said. "Our nation has never before had to confront so formidable a fiscal crisis as is now visible just over the horizon."

The administration is examining options as it prepares its second budget, to be unveiled Feb. 1.

"We share the concerns that all these members have ... in trying to bring down deficits and put us on a fiscally sustainable path," said Kenneth Baer, spokesman for the White House budget office. "We're looking at a whole range of stuff."

Who's to blame for the soaring debt is a matter of debate. Much of it is on autopilot, fueled by ever-rising costs to sustain Medicare, Medicaid and Social Security, the nation's three most expensive entitlement programs.

The White House says it inherited the problem from the Bush administration, citing the cost of two major tax cuts, two wars, a recession that began two years ago and a bailout of financial institutions. House Republican leader John Boehner and others in his party blame the $787 billion economic stimulus package passed in February and increases in this year's spending bills.

"We've seen American families and small businesses struggling all year in a very difficult economy, and all they've gotten from Democrats here in Washington is more spending and more debt piled on the backs of their kids and grandkids," Boehner said.

The cumulative debt has surpassed annual deficits as the greatest concern. The public debt could be 61% of the economy next year, growing to 70% by 2013 and 85% by 2018 if current tax and spending policies are continued, according to the Peterson-Pew Commission.

Sen. Evan Bayh, D-Ind., and a dozen colleagues threatened in December to block a nearly $2 trillion increase in the nation's debt limit — the amount of money it's allowed to borrow. Congress eventually passed a much smaller increase of $290 billion that will last only until February.

"Democrats tend to want to spend more than we can afford, Republicans tend to want to cut taxes more than we can afford, and our kids pick up the bill," Bayh said.

'The problem is the problem'

When the debt limit must be raised again in February, a dozen senators led by Conrad and Sen. Judd Gregg, R-N.H., plan to block action unless they get a vote on their commission. Their threat is forcing opponents, such as Pelosi, to signal a compromise.

"We will come to terms on a commission," Pelosi predicted last week, though its power to force Congress to vote remains in doubt. Noting Congress passed deficit-reduction packages three times in the 1990s, she said, "We know how to do it. We will do it again. And, of course, we will have to make a judgment about the priorities."

Senate Finance Committee Chairman Max Baucus, D-Mont., belittles the need for a commission to take over Congress' responsibilities. "The process is not the problem," he said, quoting former Congressional Budget Office director Rudy Penner. "The problem is the problem."