First, pay attention to Ireland, the latest nation to discover that when no one will take your IOUs, terrible things happen. In exchange for a bailout, Ireland has committed to huge spending cuts and brutal tax hikes that will inflict severe economic pain across the Emerald Isle for years.
Second, pay attention to Erskine Bowles and Alan Simpson. The dogged co-chairmen of the president’s deficit commission are telling you how difficult it already will be to save the U.S. from reaching the day when no one will take our IOUs. Let out a shudder (take away my mortgage deduction?!), then pay attention.
Third, pay attention to the Democrats and Republicans trying to cut a deal on tax cuts. Note that they want to keep money in your pocket — a good idea in bad economic times — but most of them are still trying to act like Bowles and Simpson are on another planet. It starts with President Barack Obama, who so far has been mum about the work of his own commission.
The lesson from Ireland, the lesson from Bowles and Simpson, the lesson that official Washington still doesn’t want to hear: If we don’t make painful choices on spending and taxes right now, we’re going to invite chaos.
One faint sign of hope: The Democratic chairman and ranking Republican on the Senate Budget Committee embraced the Bowles-Simpson report. But other commission members, from liberal Rep. Jan Schakowsky, of Illinois, and conservative Rep. Paul Ryan, of Wisconsin, are likely to reject its work.
This page has supported an extension of the current federal income tax rates, arguing that they should be negotiated in a grand bargain on deficit reduction. If Washington keeps the lower tax rates and doesn’t move on spending, we’re going to be sunk.
Freeze the pay of federal workers, as Obama has proposed? Fine. That sounds positively benign to the many private sector workers who have had to endure stiff pay cuts. But it doesn’t save the federal government much money.
Abandon earmarks? Fine again. But that’s chump change too.
The answer will have to be something far more dramatic, something very similar to the proposal released Wednesday by the leaders of the deficit commission.
Bowles and Simpson, they’re trying. Sometimes it seems they’re the only two people in Washington who are trying.
They have been flexible, trying to build consensus. Take tax policy. Last month, they proposed dramatic cuts in tax rates coupled with the elimination of many tax breaks, including sacred cows such as mortgage-interest deductions and child-care credits. On Wednesday they floated a plan that retains some targeted tax deductions that promote work, home ownership, health care, charity and savings, though with higher overall rates.
The plan would raise the retirement age for Social Security, put federal health-care programs on a strict budget and slash defense spending, among other controversial measures. It targets everything from federal payments to states reclaiming abandoned coal mines to restrictions that stop the Postal Service from shifting to five-day-a-week delivery.
Of course nobody is going to give lusty cheers to what Bowles and Simpson have served up. Everybody gets gored one way or another.
But the fact is, everyone is going to get gored. And it’s going to be much more in five years, 10 years down the line if we don’t act now.
So pay attention to all the frightening headlines about bad debt and runaway deficits among some European nations, to all the dramatic photos of street protests over austerity measures.
And know this: All together, the 16-nation eurozone has less debt and a much lower deficit in relation to its size than the United States has.
We’re not heading into trouble. We’re there.
