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Polarization menaces efforts to control debt

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Suddenly, it's occurred to liberals as well as wonky budget hawks that the nation's fiscal future is "unsustain-able," but the chances of action -- short of a crisis -- are near zero.

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That's because of political polarization. For years, Republicans have complained about "runaway entitlement growth," but to sink health care reform this year, they are resorting to an old Democratic tactic -- scaring seniors -- to block cuts in Medicare outlays.

The same thing happened in reverse when President George W. Bush tried to reform Social Security. Democrats charged that he wanted to "privatize" the system and leave seniors victim to the vagaries of the stock market.

Bush also tried to get Democrats to form a bipartisan commission to reform entitlements, but they refused en masse because Vice President Dick Cheney opined on a TV show that he opposed raising taxes.

When Republicans were in charge of the government, they acted as if -- and Cheney even said -- "deficits don't matter."

But now that Democrats are in charge, Republicans are complaining about burgeoning deficits and trying to pin them on President Barack Obama.

The fact is that deficits do matter. If they continue piling up at their present rate, deficits will stifle growth, lower the nation's standard of living and diminish its global standing.

Another fact is that both parties have done their part to create the fiscal mess. Both parties ought to agree to deal with it. But both find it to their advantage to simply point fingers at the other.

The Treasury Department just reported that for fiscal 2009, the federal deficit will be $1.4 trillion -- 9.9 percent of gross domestic product, the highest since the end of World War II.

Once the recession ends, that percentage will fall, but there is no prospect that the budget will ever be in balance, and national debt will continue to rise.

It was 33 percent of GDP in 2001, when Bush took office. It's 54 percent this year. The Congressional Budget Office estimates it will rise to 71 percent by the end of Obama's first term in 2013 and to 82 percent by 2019.

For several years, a bipartisan group of budget-hawk Cassandras has been calling attention to the problem.

They include David Walker, former head of the Government Accountability Office and now president of the Peter G. Peterson Foundation, and experts at the Heritage Foundation, the Brookings Institution, the Concord Coalition and the Committee for a Responsible Federal Budget.

Late last month, they were joined by the liberal Center for American Progress, which staged an all-day program built around a paper titled "Deal With It: A Guide to Federal Deficit and Debt."

News stories emanating from the conference concentrated on remarks by the CAP's president, former White House Chief of Staff John Podesta, touting a value-added tax -- a national sales tax -- as a means of raising new revenue to close the deficit.

As expected, Podesta's idea was immediately attacked by conservative anti-taxers as a scheme to expand government.

In fact, the CAP paper, written by analysts Michael Ettlinger and Michael Linden, was a sober assessment of the debt problem, its consequences for liberal purposes and the difficulties of doing anything about it.

"High levels of government borrowing can reduce domestic investment, lower future incomes, raise interest rates and spur inflation," the analysts wrote.

"These can damage the economy and hurt people who see their wages fail to keep up with rising costs or find the price of purchasing a home prohibitively expensive."

Moreover, debt and its inevitable consequences -- a cheapened dollar and high interest rates -- may lead investors, workers and foreign lenders to take action to protect themselves, "raising the specter of another financial crisis," they wrote.

According to Ettlinger and Linden, the country can't solve the problem simply by cutting spending or raising taxes. Federal spending would have to be cut 18 percent to balance the budget by 2014, or taxes would have to be raised by 22 percent.

"Finding an answer to this problem is not going to be easy," they wrote.

"There are too many immovable objects -- too many spending areas that can't be cut, too many taxes that can't be raised.

"And yet, these deficits are too large to be tolerated. Something has to give. And the longer we wait, the harder it gets, as the cost of debt service gets greater and deficits grow."

Obama's budget director, Peter Orszag, has promised that the president's 2011 budget will contain proposals to deal with the deficit problem.

But given the political atmosphere, Obama's ideas -- if they involve taxes -- are likely to be rejected by Republicans and -- if they involve Social Security, Medicare or social program cuts -- by Democrats, too.

The fact is that both need to happen -- taxes raised and the growth of programs controlled. Americans need to save more for their own retirement instead of depending on government support.

So far, proposals for a bipartisan fiscal commission by Sens. Kent Conrad, D-N.D., and Judd Gregg, R-N.H., and Reps. Jim Cooper, D-Tenn., and Frank Wolf, R-Va., have gone nowhere.

It may take a crisis to produce movement -- such as a decision by China, America's top creditor, to stop buying U.S. debt, or a serious international move to drop the dollar as the world's reserve currency, or the loss of America's AAA bond rating.

Or perhaps it will take a political crisis, such as the emergence of a third-party presidential candidate in 2012 who will make deficit reduction as important as Ross Perot made it in 1992.

Perot received only 19 percent of the vote, but at one point he led in the polls. Deficit reduction became a priority for the incoming Clinton administration and, after Republicans won control of Congress, it became a reality.

One way or another, the debt bomb will create a crisis. It would be better if, somehow, Republicans and Democrats could work together to defuse it.

Morton Kondracke is executive editor of Roll Call, the newspaper of Capitol Hill.

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