Shortly before adjourning at the end of 2009, Congress passed legislation providing a $290 billion increase to the $12.1 trillion limit on the national debt. The measure is expected to last only two months before the limit must be raised again to avoid a default on the government's obligations, forcing Congress to revisit the issue this month. How Congress handles the matter may be the first real step toward addressing the long-term fiscal crisis facing the U.S.
The short-term extension
The short-term debt limit extension became necessary when congressional leaders could not garner enough votes to pass their original proposal—a $1.8 trillion increase designed to last through this year. In mid-December 2009, a group of moderate Democratic senators sent Senate Majority Leader Harry Reid (D-Nev.) a letter indicating they would not vote for the year-long debt limit increase unless the Senate also voted to create a special commission to address the U.S.' long-term fiscal problems. In the face of this opposition, Democratic leaders were forced to scrap their original proposal in favor of the short-term fix.
The revolt against a long-term debt limit extension demonstrates that some lawmakers are reacting to mounting public concern regarding the debt being incurred by the federal government. A recent editorial in The Washington Post noted that during 2009, the U.S.' long-term debt "soared from 41 percent of the gross domestic product to 53 percent" compared with an average of 37 percent during the past 50 years. The editorial also noted the national debt is "on track to rise to a crushing 85 percent of the economy by 2018."
Future concerns
The situation may worsen in the years beyond the next decade. According to the Congressional Budget Office, rising entitlement costs (primarily Medicare and Social Security) will push the ratio of debt to gross domestic product (GDP) to 181 percent by 2035 and 321 percent by 2050 without the enactment of major reforms.
The increased government spending that is fueling the debt quickly is becoming one of the top issues of public concern, according to opinion polls. Under the Obama administration's official projections, based on current policies, federal spending as a percentage of GDP will rise to about 24 percent during the next decade up from an average of about 20 percent during the past 40 years. However, revenues based on current tax rates are projected to remain around their 40-year average of 18 percent of GDP, according to National Journal. This sizable gap between spending and revenues cannot be sustained indefinitely.
The budget problems will profoundly affect virtually all major domestic policy decisions for years and will have significant consequences for entrepreneurs who wish to start or grow their businesses.
For instance, greater levels of government spending and the need to pay down the national debt will require more tax revenue, and businesses surely will be targeted for tax increases. Rising levels of government spending and debt also could affect interest rates and inflation, making it more difficult to gain access to capital and make investment decisions.
Controlling spending
This month, Congress again will have to pass legislation to increase the national debt limit, and it appears likely the legislation will establish a commission or other mechanism designed to begin addressing the fiscal crisis. At about the same time, Obama is set to release a budget proposal that will contain proposed spending policies for fiscal year 2011 and beyond. NRCA hopes both measures will contain serious initiatives aimed at getting the U.S.' fiscal house in order.
Duane L. Musser is NRCA's vice president of government relations.
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