In his latest Gallery column, Deloitte’s Robert Campbell says that political and policy leadership is needed at all levels of government as mounting debt looms large for not only the federal Treasury, but for state and local budgets as well. “The next several weeks are likely to be instructive concerning our financial future,” Mr. Campbell argues. “The negotiations over what concessions and cost reductions need to be made in exchange for adjusting upward the debt ceiling will make for interesting debate.”
A few weeks ago, I had the good fortune of participating in the National Fiscal Solutions Tour on its visits to San Antonio and Austin, Texas. The objective of the tour is to increase public awareness and public education concerning the daunting challenges of the U.S. federal deficit and debt. I had the opportunity to share the podium with former U.S. Comptroller General David Walker, founding head of the Congressional Budget Office, Dr. Alice Rivlin, and CEO of the Concord Coalition, Robert Bixby. The LBJ School of Public Affairs was thoughtful to host the event in Austin and the University of Texas at San Antonio similarly hosted the event in San Antonio. Informed discussions on the topic are something we need more of.
As I have discussed in previous columns in this space, the U.S. federal debt is becoming a very significant challenge to the U.S. economy. I studied it up close and personal as a member of the 19-member Bipartisan Policy Center task force on the federal debt, which reported publicly last November. You cannot talk about it enough or in too many places, as it is that real and that big a challenge.
As if the U.S. federal debt challenges are not enough, we are also seeing significant and growing debt issues among other members of the G20, including Japan, the UK, Germany, France and Canada. Although 2010 data from the Economist Intelligence Unit (EIU) indicates that Japan has the largest public debt to GDP ratio, the several other countries mentioned have public debt per capita over $25,000. According to EIU data, these countries are similarly approaching a public debt to GDP ratio of 100 percent or more – which the BPC task force determined the U.S. public debt could exceed by the early part of the next decade if left unabated. To put that in perspective, the interest cost alone on the debt would exceed one trillion dollars annually.
On top of the U.S. federal deficit, we also have significant deficits and growing debt at the state and local government level. There are fundamental structural issues at the state level, which will need to be addressed in the regular legislative sessions this spring, and I discussed a few of them in my January column.
As the BPC report clearly states, and most informed observers are aware, we are on an unsustainable track. There is an imperative that we act proactively in Washington and in the major state capitals over the next several years to avoid a longer term financial crisis. Without action, increased government borrowing is very likely to lead to higher interest rates, inflation, and reduce confidence in the U.S. dollar over time. The BPC report recommends a holistic approach to stabilizing our debt including economic stimulation, cost reductions, revenue enhancements, and policy changes.
The next several weeks are likely to be instructive concerning our financial future. The White House has tendered the preliminary budget proposal for federal fiscal 2012. Although some measures are proposed concerning discretionary domestic spending and earmarks, the proposal does not address the more fundamental and significant budget drivers.
The next point of inflection will likely be at the point late in the spring when the current legislative U.S. debt ceiling of $14.3 trillion is reached. The negotiations over what concessions and cost reductions need to be made in exchange for adjusting upward the debt ceiling will make for interesting debate.
It is clearly a time for leadership and a time to lead. Study the Bipartisan Policy Center plan as one approach for resolving the issue. I would be interested to hear your thoughts on ways to approach the issue in the comment section below.
Mr. Robert N. Campbell III is Vice Chairman, Principal, Deloitte LLP and is the U.S. State Government Leader, based in Austin.
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