Corker warns of looming debt crisis

Sep 23, 2010

Bob Corker believes if Washington doesn’t dramatically reduce federal spending levels in relation to GDP, we are in danger of becoming the first generation of Americans to leave our country in worse shape than we found it.

In August Corker visited 26 Tennessee counties to talk about Washington’s unsustainable spending habits that are driving the country into dangerous levels of debt. He is working on legislation to cap spending at a sustainable level, force Congress to make tough choices and incentivize economic growth.

“There is absolutely no construct for fiscal discipline at the federal level. If we do not change the path we are on and dramatically reduce our level of spending in relation to our country’s gross domestic product, I believe we are in danger of becoming the first generation of Americans to leave our country in worse shape than we found it,” Corker said. “We need to change the conversation, and I think that means focusing on the big picture first. The gnashing of teeth about tax policy and spending cuts will come, but that's page three, four and five. Page one is agreeing on the amount of spending we can sustain as a country.”

In a sobering, 18-slide presentation, Corker uses *charts and graphs to illustrate Washington’s spending trends and mounting debt. Using information from a number of sources including the Congressional Budget Office, U.S. Department of the Treasury, and the Office of Management and Budget, Corker makes the following points:

• One measure of a country’s economic health can be determined by looking at its debt in relation to its gross domestic product (GDP). America’s debt is currently 62 percent of GDP, well above historical levels. If we continue on our current course, by 2030, America’s debt will be 146 percent of GDP, far exceeding what economists view as sustainable. For reference, Greece’s debt level was at 120 percent when the European Union stepped in.

• In 2010, the federal government will spend $1.47 trillion more than it takes in. To put that in perspective, in 2008, the average Tennessee household earned $43,000 a year. If that family applied Washington logic to their budgeting, they would have spent $74,000, borrowing 40 cents of every dollar and spending $31,000 more than they earned.

• Non-discretionary or mandatory spending (spending required by law and not subject to the annual congressional appropriations process) is growing. In 1970, discretionary spending (defense, highways, education) was at 62 percent. Mandatory expenditures (Medicare, Medicaid, Social Security) totaled 31 percent. Interest payments equaled seven percent. In 2010, discretionary spending has fallen to 38 percent. Mandatory spending has increased to 56 percent. Interest payments are at six percent. Projections for 2035 show discretionary spending at 26 percent, mandatory spending at 49 percent and interest payments at a whopping 25 percent. In 2009, the federal government spent $187 billion in interest on debt. That figure dwarfs annual federal spending on the departments of transportation ($69 billion), homeland security ($49 billion) and education ($45 billion) and is enough to run the state of Tennessee ($30 billion) for six years. Under the administration’s budget projections, U.S. debt service will be $916 billion by 2020.

• Fifty years ago, only five percent of our debt was held overseas. Today, that figure is 47 percent. China alone owns about 10 percent (9.8 percent or $844 billion).

• The first step in tackling our debt is determining the right level of spending. Over the past 50 years, U.S. federal spending has averaged 20.3 percent of GDP, and revenue has averaged 18 percent. Erskine Bowles, who served as chief of staff under President Bill Clinton and now co-chairs President Obama's debt and deficit commission, has said spending should be at about 21 percent of GDP. Corker would like to see a balanced budget, which would put spending at about 18 percent of GDP. Getting to 18 percent (and a balanced budget) would mean a $6.7 trillion reduction in spending over the next 10 years. Getting to 21 percent, as proposed by Bowles, would mean reducing spending by $3.4 trillion over the next 10 years. Both would be draconian measures that would require vast changes in the way Washington does business.

“There are some economists on both sides of the aisle who believe a country can sustain a small, two percent gap between spending and revenue,” said Corker. “However, the 10 percent gap between spending and revenue that exists today and the gaps projected in the future are absolutely not sustainable and will bring crisis to our country.

“There is plenty of blame to go around, but pointing fingers isn’t going to solve the problem. Somewhere between 18 and 21 percent, I believe an agreement can be reached between Republicans and Democrats. To me, this is page one in the debate. If we focus on this first, instead of on those things that divide us, maybe we can get the conversation off the ground and begin to actually solve the problem.

“I believe in American exceptionalism, and I believe we can solve this problem. Previous generations of Americans made sacrifices for the good of our country, so their children and grandchildren would have an even greater standard of living. It’s time for us to do the same. That means living within our means. It means politicians no longer promising things to their constituents without paying for them, and it means constituents telling their elected officials they would rather sacrifice a little now than leave future generations with crippling debt.”

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