Unless you spent Spring Break on Mars you know that what to do about the exploding federal budget deficit and public debt has become the big issue of 2011.

Without getting into the details or the politics, we can hazard a few observations:

  1. As they did to avert a government shutdown recently, Democrats and Republicans will find a way to reach agreement on raising the public debt ceiling above the present $14 trillion level. Yes, that’s $14,000,000,000,000! An impressive number even by Washington standards.
  2. The nonpartisan Congressional Budget Office estimates that President Obama’s FY 2012 budget, submitted in February, has a cumulative 2011-2021 deficit of $9.4 trillion. The White House and Capitol Hill are unanimous that urgent steps are needed to reduce this figure substantially—perhaps by as much as $4 trillion over ten years. The disagreement is over exactly how.
  3. Economic pressures, some external, seem to be building. Oil prices keep soaring, commodity prices like gold have reached record highs and the dollar has been plunging—evidence of worries that our political process may not be capable of resolving this issue any time soon.
  4. We can be certain that the issue ultimately will be resolved—though maybe not before 2013. Sooner or later annual trillion-dollar+ deficits will trigger a loss of confidence and sharply higher interest rates if something isn’t done. At the end of the day the White House and Congress have no choice. Read more.

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The Deficit Dilemma: A Perspective

Tue Apr 26, 2011

Unless you spent Spring Break on Mars you know that what to do about the exploding federal budget deficit and public debt has become the big issue of 2011.

Without getting into the details or the politics, we can hazard a few observations:

  1. As they did to avert a government shutdown recently, Democrats and Republicans will find a way to reach agreement on raising the public debt ceiling above the present $14 trillion level. Yes, that’s $14,000,000,000,000! An impressive number even by Washington standards.
  2. The nonpartisan Congressional Budget Office estimates that President Obama’s FY 2012 budget, submitted in February, has a cumulative 2011-2021 deficit of $9.4 trillion. The White House and Capitol Hill are unanimous that urgent steps are needed to reduce this figure substantially—perhaps by as much as $4 trillion over ten years. The disagreement is over exactly how.
  3. Economic pressures, some external, seem to be building. Oil prices keep soaring, commodity prices like gold have reached record highs and the dollar has been plunging—evidence of worries that our political process may not be capable of resolving this issue any time soon.
  4. We can be certain that the issue ultimately will be resolved—though maybe not before 2013. Sooner or later annual trillion-dollar+ deficits will trigger a loss of confidence and sharply higher interest rates if something isn’t done. At the end of the day the White House and Congress have no choice.

Finally, what does all this have to do with HR policy? It’s hard to imagine a deficit reduction package that would not include tax reforms. And those tax reforms are likely to include provisions that would impact employee health and retirement benefits. Put another way, we should assume that the present-law tax exclusion for employer-provided health coverage and pre-tax contributions to defined contribution retirement plans will both be on the deficit reduction table.