Mr. REED. Mr. President, I rise today to talk about the regrettable and avoidable looming debt crisis if we don't take appropriate and timely steps beginning today and continuing over the next few days.
As we continue to work to get our economy out from under a protracted and painful recession and on a more robust path of growth and job creation, not having an agreement to pay our country's bills has severe consequences. Defaulting could mean not only a potential stoppage of Social Security and veterans' benefits checks, but even more worrying than what could happen to bondholders and the middle class is the question of whether this could push us back into not only a severe recession but a worldwide economic catastrophe.
We can look across at European governments struggling with sovereign debt crises. Also, one of the lessons we should have learned from the events of 2008, and particularly that fall, is that a lack of confidence and a vulnerability in one part of the world's financial systems can be magnified dramatically because of connections and interrelationships and could potentially produce a worldwide crisis.
So this is an issue we have to address. A failure to act would cripple our government almost immediately. In August, if there is not a solution, it is estimated that spending in the economy could contract immediately from 40 to 50 percent. That means the U.S. economy would be hit with a loss of about $134 billion or about 10 percent of GDP for the month of August if we fail to find a solution. A 10-percent loss to August's GDP could bring our credit markets to a standstill and could lead to the loss of millions of additional jobs.
One of the ironies of this debate is that the proposal by some on the other side to simply not pass debt limit legislation would be tolerable. In fact, it would be catastrophic. It would be catastrophic in terms of the very objective they are urging--controlling the deficit. As people drop out of the labor force, they require more benefits. They are not able legally or in a position to pay the taxes they were paying while working. In addition to that, it has been estimated that for every 1 percent increase in interest rates--and if we default, interest rates will go up on U.S. Treasuries--we will over 10 years accumulate $1.3 trillion in additional deficit. So in one fell swoop, the deficit hawks who are screaming so loudly today could put us on an even worse deficit trajectory.
We all know the job of bringing this budget into alignment is not going to be easy. It involves many tradeoffs, some of which are likely to be very unpopular. It started in 1990, when Republicans joined us in a balanced approach. Along with my colleagues who served here in the 1990s under President Clinton, we then took some tough votes with not one Republican vote in support of us in 1993 when the process of balancing the budget continued. It takes time. It takes difficult votes. It was done in the 1990s.
As we all know, when President George W. Bush assumed office, we were looking not at massive deficits, we were looking at a potential surplus of trillions of dollars over a 10-year period. But with the programs that President Bush, together with his Republican colleagues, embraced, of significant tax cuts, an expansion of entitlements, such as Part D Medicare which was not paid for, which was put on the credit card, and two unfunded wars, we are sitting today with this huge deficit.
Frankly, this proposal to raise the debt limit is very simply paying for what President Bush and Republican Congresses did several years ago. Yet we find my colleagues on the other side saying: Oh, we cannot do that. We cannot do that without significant reductions in programs that are vital to Americans.
We have already demonstrated--we did that in a continuing resolution that is covering this year's funding--we can and will make difficult cuts. We can reduce spending. But we have to do it in a measured way. The other thing we have to do is recognize that any solution, just as it was in the 1990s, will require revenues as well as expenditures. That is the only way the arithmetic will work.
I find it sometimes ironic when I go around and talk and they say: Oh, if we don't solve this problem, you are putting all this burden on our grandchildren. Where was that spirit when the President cut taxes and began to eliminate a surplus that would have benefited our grandchildren? Where was that spirit when the President decided to engage in two major wars but not pay for them? Where was that spirit when the President decided he was going to expand entitlements and not pay for them? There were very few of my colleagues on the other side worrying about grandchildren then.
Well, we do have to worry about our grandchildren. That means we have to start taking the tough steps today. We have to start making the sacrifices that will get our budget in order. Those sacrifices are not simply in cutting programs that are so vital not only to so many Americans but are so vital to our continuing economic growth.
I am sure everyone here will say they have important highway projects in their States, they have important infrastructure projects in their States. Do we sacrifice those projects? If we do, then we sacrifice our economic efficiency, we sacrifice our productivity, and we give the results to our grandchildren: a decrepit infrastructure, with the inability to be competitive in a very competitive global economy.
We have to move forward. We have to move forward to avoid a catastrophe to the economy if the debt ceiling is not raised. Also, we have to move forward to begin to balance our budget in the way it has been done in the past and, frankly, in the way it only can be done; that is, we have to start, beginning today, to make the sacrifices and make the tough choices that will provide a better future for our grandchildren.
We have done it in the past. In 1990 and 1993 we took tough steps, as I mentioned before, to begin to balance the budget. And in 1997, with a Republican Congress and a Democratic President, we took additional steps. We can do it, and we must do it.
The idea that we are going to default is difficult to imagine, but, still, there are those out there on the other side who are saying they will not vote for raising the credit limit in any way, shape, or form. I think that is irresponsible. I think we have to be responsible. We have stood up before. We have taken tough votes. We have to do it again.
Failing to do that puts a huge burden on the middle class. The wealthiest amongst us may be able to negotiate through the vagaries of what might happen after a credit default by the United States, but for Social Security recipients, for military retirees, for those people who are looking for the basic services of government--transit to get to work, the ability to get on a plane--who is going to be manning the TSA posts if the government cannot essentially pay its debts? All these issues have to be considered.
We have to, as I said, talk about revenues too. It is astounding that people would literally be suggesting we cut back Social Security benefits, that we cut back retirement benefits, that we do all these things at the same time we are providing about $4 billion in annual tax incentives to the oil industry, when the price of oil is at record levels, their profits are at record levels. These are a host of tax provisions that do not make us anymore productive. In fact, one might argue they do not even encourage employment here in the United States. One could make the suggestion, at least the way we set up the system, that it might encourage employment overseas, and then we repatriate the profits here. Well, that might be fine for the big companies and the executives, but what about Americans who are looking for jobs? What about Americans who are looking just to get by?
We also have to recognize that some of the proposals we have made--in fact, all of them the President has talked about with respect to revenues--would not be effective immediately because we are still in a period of very fragile economic growth. They would be effective in 2013. But they would go to that long-term goal of deficit reduction, which we can achieve, but it will take time, just as it took time in the 1990s.
But even these proposals to close loopholes, which are, in my view, very difficult to defend-and to do so not immediately but several years from now--even these proposals are being resisted by Republicans. That does not make sense to me. I also do not think it makes sense to a growing number of Americans across this country. They want us to be responsible. They want us to be able to pay our debts. Then they want us to get our debts under control. They recognize that requires not just good will and good wishes, it requires real, difficult choices and sacrifices.
We are seeing now an economy that is racking up huge profits for industry. The nonfinancial members of the S&P 500 index are sitting on about $1.1 trillion in cash. The Federal Reserve indicated similarly that nonfinancial businesses have about $1.9 trillion in cash defined as liquid assets.
Record profits are being accumulated by corporations. All of this is good, but it is much better if those cash resources and profits are put back into the American economy in terms of creating jobs. That should be part of our effort too, not simply reducing the deficit, but reducing it in a way where we grow jobs here in the United States. That is also at the heart of what the President is talking about in terms of his efforts.
We are on the verge of tough votes and tough choices, and I hope we make those tough choices and tough votes. We do have to pay our debts, but then we have to get our debt under control. We have done it. We did it in the 1990s. I would argue without some of the policies that were enthusiastically embraced by many who are here today, who are talking about sacrifice for the middle class but no sacrifice for the very wealthy, we would not be in the same position we are in today.
I believe we are at a very critical moment. We have to resolve this issue by August 2. I hope we can do that. I hope it will turn on the same kind of sensible, balanced approach that we adopted previously in the 1990s. We have to go ahead and think in terms of restoring our financial house and then getting our American people back to work. If we do that, I think we will fulfill not only the best hopes and wishes of the American people but their strong desires.