In the wake of Congress’ decision to avoid the economic catastrophe its reckless behavior nearly invited, it is clear that the country faces not a debt crisis or a budget crisis, but a GOP crisis. The question is not whether we can solve our problems but whether we will solve our problems — and whether Republicans will continue to get in the way.
Most Americans have been led to believe that we face an imminent Greek-style debt crisis unless Congress acts immediately to cut spending and rein in deficits. This belief is wrong, and it is wrong in a way that has already invited unfortunate consequences.
What most Americans — or, for that matter, most members of Congress — don’t realize is that there is almost no deficit problem under current law. If Congress took a 25-year vacation, the debt-to-GDP ratio would remain roughly stable. Furthermore, Greek-style default is impossible in any country that, like the United States, maintains an independent monetary policy and can (unlike Greece) mitigate the impact of rapid fiscal adjustment.
So what’s the problem everyone keeps worrying about?
The problem is that Congress continues to modify current law in a way that increases the deficit. Three policies in particular exemplify this problem: the Bush tax cuts, the alternative minimum tax, and the Medicare sustainable growth rate formula.
The Bush tax cuts are straightforward: Over the last 10 years, no single policy has contributed to America’s debt more than the Bush tax cuts, and over the next 10 years, a full extension of them would increase the nation’s debt by $3.5 trillion. (By comparison, the most ambitious deficit-reduction deals considered in the recent debt-ceiling negotiations were in the ballpark of $4 trillion.)