Friday, October 3, 2008


Assuming Congress gives President Bush, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and SEC Chairman Christopher Cox the essential package they are seeking to restore confidence in the U.S. credit markets, and that their remedy itself succeeds in that purpose, the question then becomes, where do we go from here?

Before the tumultuous and historic events of the last fortnight assaulted Wall Street and Washington, way back when concerns were more routine — just about the latest worrisome projections by the Congressional Budget Office of an annual operating deficit of $409 billion in 2009 — it was a cliché to ask how long Americans were going to go before addressing our fiscal “crisis.” In those quaint times — a whole month ago — before talk of $700 billion in new crisis commitments, federal budget analysts referred to this now familiar litany of just some of the more urgent problems:

The steady and sure cost of maintaining a two-front war in Iraq and Afghanistan (over $10 billion a month); The debilitating annual cost of debt service (at 8 percent of the total federal budget — it is now equivalent to three Cabinet agencies´ annual budgets, combined); The intensifying pressure on the Treasury to finance our escalating structural deficit (now headed north of $10 trillion); Increasing dependence upon foreign lenders´ participation; The falling value of the greenback and its impact on dollar; Denominated commodity prices, especially oil; The daunting prospect of dealing with Social Security; Medicare´s even more pressing problems (which, without changes, will be unable to meet its obligations by 2019); The desire to limit the reach of the Alternative Minimum Tax (a one year “fix” this year is, by one calculation, $104 billion — outright repeal would be $1.6 trillion over ten years); The problem of the sunsetting Bush administration tax cuts and whether to sustain their cost in the future.

That was then. Now we have before us the possibility of a new, unprecedented, and not time-constrained, massive commitment of federal funds to the resolution of the credit crisis. It is at least arguable that some major portion of this commitment will add to the deficit, and certainly will add to the government´s credit needs: borrowing over the next few years.

So, where do we go from here?

First, we need to adopt a “just do it” persona. We must decide to confront what has become our national addiction to deficits. If we don´t, it is just a matter of time before we will be forced to do so in circumstances we won´t control. This will take all the commitment and rhetorical creativity of the new president, starting with an early and frank fireside chat leveling with us about the need to change our expectations of government and for shared — fairly shared — sacrifices. It will also take a congressional leadership that considers getting our financial house in order — more desirable as a measure of their success than taking pride in announcing new or enhanced spending on projects and programs we must borrow to pay for. That certainly won´t happen unless the aroused, vocal demands of millions of voters compel change. Years ago, citizens in California caused national tremors with voter-initiated Proposition 13 limits on property taxes, demonstrating that they had “had enough and weren´t going to take it anymore.” Washington took real notice. This type of serious grass roots effort will again need to happen, perhaps inspired by a new president; this time directed towards curbing deficits instead of creating them.

Second, we aren´t just a nation of “whiners.” Most Americans understand in their gut that a great collective “pay-for” day is coming and is overdue. Politicians need to recognize that their constituents are willing to expect less and pay more as long as they have the perception that the sacrifices involved are necessary and equitably shared. The sacrifices called for must directly relate to solving the urgent problems listed above and, with innovation, must offer a realistic hope for success and a brighter future. They won´t be fun and should, if properly doled out, affect all of us. They sound like clichés. They include addressing anew the size of the federal government, paying more taxes, taking less benefits, being more realistic about the limits of government, taking more individual responsibility, and having a new national willingness to defer more to those among us with more needs and less ability to deal with those needs when it comes to making priorities. The situation also means caring more about demanding accountability and efficiency from elected leaders and government and much more effective oversight of the resources we spend.

Finally, as the presidential debates unfold, we need to look for who has the courage to take the reins in these circumstances, demonstrating an understanding of the challenges ahead, and a desire to do what is necessary to regain our national footing. What we have seen over the last two weeks is a fair warning of what is to come. What has been on display for the world to see is our ability to come together at a critical time. It is possible the next president will only get four years in office because of the difficulties involved and the decisions required. What we face now is a collection of challenges sufficiently profound that they call into question our leadership in the world, our ability to call on our better instincts, and the optimism that we should all expect as Americans. We desperately need leadership. Let´s hope we make the right choice.

Joe Dowley is former chief counsel of the House Ways & Means Committee during the period when Congress last addressed Tax Reform.

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