A five-person panel of experts questioned whether the U.S. will be able to meet fiscal challenges in the coming year, citing “irreconcilable differences” between the two parties, election-year politics and entrenched interests.
The panelists–AALU CEO David Stertzer; Mark Cadin, AALU’s senior vice president of government affairs; Chris Morton, an AALU vice president of legislative affairs, Federal Policy Group Managing Director Kenneth Kies, and Ricchetti Inc. President Steve Ricchetti–explored fiscal and other challenges the U.S. faces during a general session at the AALU’s annual meeting earlier this month.
Kies said that the national debt, only $5.08 trillion in fiscal 2008, will exceed $20 trillion in the several years, based on current projections. He added that the budget deficit in 2011 was $1.65 trillion.
These numbers, as bad as they are, could be even worse,” said Kies. “We’re on an unsustainable path. As a percentage of GDP, we’re heading into the 80% range. That puts us in the inauspicious company of Greece, Portugal, Spain and Ireland–all countries that have seen a downgrade to the credit rating.”
“We’re facing the most serious fiscal problems in our history while heading towards an election,” he added. “And election-year politics will make getting an agreement this year very difficult.”
On the question of raising the current $14.3 debt ceiling–the amount of money the federal government can borrow under U.S. law–Ricchetti said that to do so would have “catastrophic effects” on the U.S. financial standing in credit markets and the fragile economy recovery.
Cadin agreed, adding that Republicans and Democrats in Congress will have to achieve consensus on either of two choices: a “clean debt ceiling” (raising the debt ceiling without enacting concurrent spending cuts); or coupling a new debt ceiling with spending reductions.
“In my view, we need to deal with spending,” said Cadin, adding that 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,” Cadin said. “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 that a deal can be achieved because of the “irreconcilable positions” of the two parties. President Obama and leading Democrats in Congress, he said, expect that between $1 and $2 trillion in deficit reduction to come from tax increases. The Republicans are steadfastly opposed to any increase in income taxes.
He suggested that Congress will finesse the issue through a series of short-term debt ceiling extensions that could carry into the fall or next year.
Ricchetti agreed with Kies that the two parties have “taken irreconcilable political positions.” But he expressed hope that the killing of al Qaeda leader Osama bin Laden, announced by President Obama on May 1, just as the AALU conference was starting will provide a “unifying atmosphere” in which Republicans and Democrats can bridge differences.