U.S. risks falling off a global cliff

The United States, it turns out, is a fiscal-gap serial offender by the standards of all three of these respected independent authorities, approximating an average gap of 8 percent of GDP. Compared with Germany and Canada, the United States is addicted to deficits and committed to future spending far beyond reasonable comparison. In fact, the company we keep includes Greece, Spain, Britain and Japan — a rogues’ gallery of debtor nations that have abused deficit financing for decades. …

In other words, the CBO’s fiscal-gap estimate is four times the amount entertained by the supercommittee. Although the CBO’s annual report makes no recommendations about how to close the gap, it does warn that time is of the essence. A continuing overdose of $1 trillion or more per year in fiscal deficits will increase the gap by as much as half a percent in 2014 and result in a debt-to-GDP percentage that exceeds 100 percent, a level at which economists Kenneth Rogoff and Carmen Reinhart show has historically slowed GDP growth.

This potential impact on long-term growth is the critical reason why our near-term fiscal cliff must be avoided and a long-term fiscal compromise initiated that begins to close the fiscal gap. Clearly, the ad hoc budgetary triggers set to take effect Dec. 31 are extreme and counterproductive on both the revenue and spending sides. Draconian cuts to defense and dangerous increases to middle-class tax rates are destructive fantasies spun inside closed-door Washington chambers. Instead, in late November, whoever has been elected president should focus on where the money is: higher tax rates on capital gains and income for the wealthy, and reduced long-term entitlements in Social Security, Medicare and Medicaid for all Americans. The fiscal gap must be closed from both ends.