WASHINGTON – Tax policy watchers are questioning whether Congress can get past philosophical differences, election-year politics and entrenched special interests as they do battle with the federal budget deficit.
The national debt started at a little over $5 trillion in fiscal year 2008 and is on track to exceed $20 trillion in just a few years, Kenneth Kies said here today during a panel discussion at the 2011 annual meeting of the Association for Advanced Life Underwriting (AALU), Reston, Va., which started Sunday and is set to end Wednesday.
The U.S. national debt could soon amount to about 80% of U.S. national gross domestic product.
“That puts us in the inauspicious company of Greece, Portugal, Spain and Ireland–all countries that have seen a downgrade to the credit rating,” Kies said. “We’re facing the most serious fiscal problems in our history while heading towards an election. And election-year politics will make getting an agreement done this year very difficult.”
Kies, managing director of the Federal Policy Group, Washington, appeared on the general session panel along with AALU Chief Executive Officer David Stertzer; Mark Cadin, AALU’s senior vice president of government affairs; Chris Morton, an AALU vice president of legislative affairs; and Steve Ricchetti, president of Ricchetti Inc., Washington.
The panelists talked about the fiscal challenges and other challenges facing the United States.
One of the biggest questions concerns efforts to raise the current $14.3 trillion debt ceiling, which governs the amount of money the federal government can borrow.
Some budget hawks want to try to enforce fiscal discipline on Congress by leaving the ceiling where it is.
Ricchetti said failing to raise the ceiling would have catastrophic effects on the United States’ financial standing in credit markets and on the fragile economy recovery.
Cadin agreed, adding that Republicans and Democrats in Congress will have to agree on on one of two solutions: adopting a “clean debt ceiling” bill that would raise the borrowing limit without imposing significant spending cuts, or adopting a new debt ceiling along with large spending reductions.
“In my view, we need to deal with spending,” Cadin said. “The real debate will focus on how much in spending cuts both parties will agree on to get to a new debt ceiling. The reality is we don’t have to raise taxes to deal with the spending problem. We have to cut spending to deal with the spending problem. That will be the message that carries the day. And I think ultimately a spending deal will produce a deficit pact.”
Kies expressed skepticism about the idea that Republicans and Democrats can make a deal.
President Obama and leading Democrats in Congress expect $1 trillion to $2 trillion in deficit reductions to come from tax increases, and the Republicans are steadfastly opposed to any increase in income taxes, Kies said.
Kies suggested that Congress will finesse the issue by adopting a series of short-term debt ceiling extensions that could carry into the fall, or even into 2012.
Ricchetti agreed with Kies that the two parties have “taken irreconcilable political positions.”
The political rhetoric used in recent weeks will make the task extraordinarily difficult, Ricchetti said.
But Ricchetti expressed hope that the killing of Al Qaeda leader Osama bin Laden, announced by