Here are my favorite parts of Peter’s speech (emphasis added). Note that Obama Administration officials are still very disciplined about cracking the door open on tax increases without ever uttering the phrase “tax increase.” To the list of “factors” and “things” the Administration has been considering, we can now add “a number of proposals” and “a range of options”:
This is the responsibility that each subsequent generation of Americans must live up to – to build upon the legacy we have inherited and create an economy that is strong, vibrant, and able to sustain our nation long into the future.
All of us are keenly aware of the immediate struggles we face because of the current economic downturn. I’m sure many of your families are facing excruciating choices that, even a few years ago, would have been unimaginable.
But what may be less appreciated is the long-term impact of this crisis – on our economy, on our fiscal situation, and on our future.
So, as we move from rescuing the economy to rebuilding it, it’s essential that we keep these long-term effects in mind – because only by addressing them can we succeed in building a new foundation for stable economic growth…
Just a few weeks ago, the Administration released the year-end statement of the federal government – a final accounting of what we took in and what we spent for fiscal year 2009, which ended in September.
The results were not a surprise, but they were still sobering: the deficit for last fiscal year was $1.4 trillion, or 10 percent of our economy.
Next year’s deficit is expected to be about the same size, and current projections show $9 trillion in deficits over the next 10 years, averaging about 5 percent of GDP.
Deficits of this size are serious – and ultimately unsustainable.
So how did we get here?
Of the $9 trillion in deficits projected over the coming decade, nearly $5 trillion comes as a result of failing to pay in the past for just two policies — the 2001 and 2003 tax cuts and the creation of a Medicare prescription drug benefit.
The cost of the tax cuts will total about $4 trillion over the next decade, including the additional interest on the debt the federal government will have to pay since the tax cuts were deficit financed…
All told, the entire $9 trillion deficit reflects the failure to pay for policies in the past and the cost of the worst economic downturn since the Great Depression and the steps we had to take to combat it.
Now, assigning blame never solves a problem, but it is important to understand that we didn’t get where we are merely as a result of bad luck.
It was the result of decisions – conscious, but unfortunate – and it will take deliberate action for us to work our way out of this situation.
And it’s critically important that we do just that…
Once health reform is passed, however: the job of getting our nation back on a fiscally sustainable course will not be complete. Our current projections of 4 to 5 percent of GDP in budget deficits in the out-years are well above the fiscally sustainable level of roughly 3 percent.
To bring deficits down to a sustainable range, therefore, will require more action once the economy is into a recovery. We are currently considering a number of proposals to put our country back on firm fiscal footing, and to cut the deficit we inherited in half by the end of the President’s first term…
And, after years of failing to abide by the simple principle that you should pay for what you spend, the Administration has proposed statutory “pay-as-you-go,” or, as it’s often called, “PAYGO” legislation. PAYGO would require that any new tax cut or entitlement program be fully paid for—just as we are doing today with health reform.
In the 1990s, PAYGO’s commonsense approach encouraged the tough choices that helped transform large deficits into surpluses – and its absence over the past eight years accounts for the $5 trillion figure that I mentioned earlier.
These are all important steps to reining in waste and creating a government that uses taxpayer dollars more effectively and efficiently. But these steps alone will not fill the shortfall that we face. That is why the President and his economic team are busy working on a range of options as we prepare for the fiscal year 2011 budget to be released in February…
And as the economy recovers, we must pull together – as a nation – and make the tough decisions to put our country back on a solid fiscal foundation.
None of this will be easy.
After all, it took us years to dig ourselves into the current fiscal hole. And, it will take years for us to get out.
But I – along with the President and the rest of the Administration – all are committed to making our way – responsibly and rapidly – out of this fiscal hole.