Paying lip service to the national debt

chart_tax_revenue.top.jpg By Jeanne Sahadi, senior writer


NEW YORK (CNNMoney) -- For those who worry about the national debt, the good news is that more and more lawmakers are stepping up with ideas for how to reduce it.

The bad news: Many of their initial ideas are still ignoring the biggest drivers of the growing shortfalls the country will face.

The question is will President Obama, who frequently mentions the need for debt reduction, set the record straight for both parties in his State of the Union address on Tuesday evening? And will he step up next month with something other than minor proposals to bring deficits down in his 2012 budget proposal?

One recent example of a plan that still misses the big picture is the House Republican Study Committee's proposed Spending Reduction Act. The bill, introduced last week, would shave $2.5 trillion off of spending over the next decade. The group would achieve that goal in large part by capping certain types of spending at 2006 levels.

But the proposal's aim is actually very narrow -- limited mostly to non-defense "discretionary" spending, which is less than 20% of the total federal budget. But it's the other 80% -- the funding for defense, Medicare, Medicaid and Social Security -- where much of the growing debt problem is rooted.

One tangible way to think of the debt trajectory is to consider a simulation by the independent Government Accountability Office.

Today the United States spends roughly 76 cents of every federal tax dollar on just four things: Medicare, Medicaid, Social Security and interest on the debt. By 2020, that number could jump to 92 cents of every tax dollar. And by 2040, every dollar of federal tax revenue will be needed just to pay for Social Security and interest on the debt.

"If left unchecked, the growth of these areas of the budget, especially mandatory spending, will drown out all the savings in the Republican Study Committee proposal, and more," Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget said in a statement.

In presenting their legislation last week, Republican lawmakers characterized their proposal as a "start" and acknowledged that entitlement programs and defense spending would need to be "on the table" too. But they gave no indication of how or when.

Republicans have also shown marked resistance to the idea of accompanying spending cuts with increases in tax revenue, even though both left- and right-leaning deficit hawks have said both are necessary parts of any viable debt-reduction solution.

Lastly, while $2.5 trillion is close to the size of deficit reduction that will be needed, it's a lot to pull out of one small slice of the budget without consideration for how much would come out of the rest of the pie.

To convince deficit hawks that he's serious about putting the federal budget on a more sustainable track, Obama will need to offer some concrete proposals.

He didn't openly embrace -- or in fact do much at all publicly -- to acknowledge his own bipartisan debt commission's report when it was presented on Dec. 1.

That report made bold proposals on cutting defense and reforming entitlements. It also called for serious non-defense discretionary cuts and it advocated for radical tax reform. The plan would cut spending and raise more revenue than the current tax code.

Will the president, as he has said many times, include any of the commission's recommendations -- which he promised to take under advisement -- in his budget proposal for 2012? Will his budget, as he promised all the G20 countries, call the bluff of anyone who's all talk but no action on the debt?

And will he stick to his oft-repeated pledge not to raise taxes on the middle class, or will he take the advice of two of his top former economic advisers, Christina Romer and Peter Orszag? After they left the White House, both said publicly that the country cannot adequately deal with its long-term debt through spending cuts and tax increases on the rich alone.

The State of the Union address on Tuesday and Obama's budget proposal next month may offer some answers to these and other deficit-related questions. Of course, if they don't, that will say something too. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,804.80 26.65 0.15%
Nasdaq 4,765.38 16.98 0.36%
S&P 500 2,070.65 9.42 0.46%
Treasuries 2.18 -0.03 -1.27%
Data as of 3:00am ET
Company Price Change % Change
Bank of America Corp... 17.62 0.09 0.51%
Apple Inc 111.78 -0.87 -0.77%
General Electric Co 25.62 0.48 1.91%
Intel Corp 36.37 -0.65 -1.76%
Microsoft Corp 47.66 0.14 0.29%
Data as of Dec 19

Sections

New York Magazine reporter Jessica Pressler, who has been caught up in controversy this past week, will not be moving on to a new job at Bloomberg News. More

Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More

Forums in dark corners of the web sell the kinds of hacks that befell Sony. More

Unilever sued Hampton Creek over its egg-free mayonnaise spread Just Mayo. But the company behind Best Foods and Hellman's mayonnaise has now dropped the lawsuit. More

The income of the top 1% jumped significantly in 2012, far outpacing inflation. Not only did this group make a larger share of the country's income, their share of total taxes also jumped from 35% to 38%. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.