"This football team will not improve next year unless medical science perfects heart and brain transplants" — Otto Graham, coach, Washington Redskins, late 1960s.
Washington, D.C., Olympia, and Seattle public executives and legislators will need to display over the next 60 days both heart and brains if they are to meet the most difficult taxing and spending decisions of at least the past decade. If they don't deliver, our economic distress could quickly become worse than at present.
Local media have focused over the past few days on the current session of the state legislature and the tax-increase options that would help reduce a $2.6 billion budget deficit, which probably will be $3 billion before the session ends. But our state is under less pressure than many others. At national level, the challenge is overwhelming. Let's take it from the top.
The problem at national level is perilous: It now appears that economic recovery will be quite slow in 2010, with unemployment still near 10 percent by the end of the year. The federal government has undertaken historic spending, first to rescue the financial system and, then, to generally stimulate the economy and specifically to bail out the automobile and housing industries. On top of that, Congress is expected to pass within 30 days a general remake of the health sector which will increase deficits still further. Next week it will lift the federal debt ceiling by nearly $2 trillion to cover anticipated deficits by the end of the fiscal year.
The administration estimates federal budget deficits of about $1 trillion a year over the next 10 years. By 2026 U.S. public debt is projected to exceed 100 percent of Gross Domestic Product (GDP) — the highest percentage since World War II. The trust funds which pay for Medicare and Social Security will be emptied by 2017 and 2037, respectively.
So-called discretionary spending, including defense spending, can be modified year by year. But if anything serious is to be done about our growing structural deficits, that means dealing ASAP with Medicare and Social Security. The solutions to the Medicare/Social Security problems have been well known for decades: Benefits either must be reduced or related taxes increased. Some of the solutions would not be painful: raising the eligibility age, lifting the limit on income subject to payroll taxes, changing slightly the formulas determining benefit increases, or implementing some of the spending limitations contained in the current health-legislation proposals. But each would be resisted by important constituencies.
President Obama soon will deliver his State of the Union address. In that speech, he is likely to announce his intention to appoint a bipartisan Social Security/Medicare commission to recommend ways to put both systems on a sounder financial basis — probably suggesting its whole set of recommendations to be voted up or down in the Congress, rather than addressed piecemeal. That would give political cover to politicians who already know what the recommendations would be.
Obama, at the same time, may announce his intention to phase out the spending programs that have helped bolster the financial system and economy over the past year. That will be easier said than done, especially in light of the slow pace of recovery now foreseen.
Olympia's challenges are less daunting but still difficult: As you may have noticed, politicians love to bestow benefits and dislike taking them away. (Think of the slogan coined by a Franklin Roosevelt adviser: "Tax and spend; spend and elect.")
A $3 billion budget gap is chump change, compared to that at federal level and in states such as California. But it will not be easily closed. Gov. Chris Gregoire entered her first term pledging not to increase taxes and, moreover, to examine the huge number of "tax expenditures" (i.e., subsidies and loopholes) long ago extended to Boeing, Microsoft, and various other companies and sectors. Those tax breaks, at state and local level, add up to three times the size of the state's biennial budget. But Gregoire did not ask the Legislature to repeal any; in fact, she and they added some.
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