Bowles warns about de?cit

Young people will bear the burden of the ballooning federal budget deficit, according to the UNC-system leader asked to head a national commission on debt.

Erskine Bowles, current UNC-system president and one of the leaders of a bipartisan effort to reduce the U.S. government’s debt, said a climbing deficit could mean higher taxes, reduced government services and fewer jobs for college students when they enter the work force.

“I want you to be angry about it,” Bowles said. “We’re literally mortgaging your future.”

The Congressional Budget Office predicts that the federal deficit will reach $1.3 trillion in fiscal year 2010. That is the second-largest deficit since World War II, as a percentage of the gross domestic product.

Bowles, a Democrat who served as former President Bill Clinton’s White House chief of staff, is co-chairman of the National Commission on Fiscal Responsibility and Reform,  with former U.S. Sen. Alan Simpson, R-Wyo., who once served as the Senate’s Republican whip.

In the late 1990s, Bowles was a key player in the last balanced budget, which he negotiated with the Republican-controlled Congress.

President Barack Obama has asked the deficit commission, composed of 10 Democrats and eight Republicans, to develop policy recommendations by Dec. 1.

Congressional leaders have agreed to bring the commission’s proposal to a vote if 14 of the commission’s 18 members reach a consensus.

However, that is more easily said than done, Bowles said.

“This is really a political discussion more than an economic discussion,” said David Colander, a professor of economics at Middlebury College in Vermont, who gave a lecture to UNC’s economics department on the federal deficit last month.

Bowles said he only agreed to lead the commission because Obama assured him no fiscal reform was off-limits.

One option available to the commission is a reduction in the federal programs such as Social Security and Medicare, which Bowles admitted could be unpopular.

“To balance the budget, you’re going to have to focus on where the money is being spent, and that’s principally in the entitlements and to some extent in the discretionary budget,” Bowles said.

Another option Bowles did not rule out is a tax increase, which is also traditionally unpopular — especially in an economic downturn.

“I would love to think we could do it all on the spending side, but I doubt it’s realistic,” he said.

“All the decisions we make will be painful. At the end of the day I’m not going to be very popular.”

Colander said he thinks the commission is most likely to adopt a value-added tax of 6 percent or 7 percent, which taxes goods and services as they are produced or performed.

Since it’s similar to a sales tax, it’s less noticeable to voters than a hike in the income tax, he said.

“One of the reasons the United States adopted the income tax system is that people feel the pain,” Colander said, adding that fiscal conservatives might dislike a value-added tax for that reason.

While the solutions remain politically elusive, the problems associated with the deficit persist.

“This ever-increasing debt we’re building up is just like a cancer,” Bowles said. “Over time, it is going to destroy our country from within.”

Government debt eats away at the capital available to businesses which could translate into fewer jobs in the future, he said.

He also said he is concerned the deficit will reduce the United States’ ability to compete globally in education and research.

Also, Colander said, since the U.S. sells bonds to finance the spending that exceeds tax revenue, foreign countries could stop buying U.S. debt if the deficit grows too large. 

“A lot of the debt is international,” Colander said. “The real concern is an international financial crisis.”



Contact the State & National Editor at stntdesk@unc.edu.