What would a US debt crisis feel like? First, higher interest payments make it harder for government to pay for programs like Social Security and defense. Second, those higher interest rates trickle down into the economy, making it more expensive to buy a home or get a loan for your company. Third, as the price of debt rises, the price of almost everything rises with it.

Imagine a scenario where your family faced higher prices for all goods, combined with higher taxes on your income, combined with fewer services for your parents and children, and you begin to understand what a debt crisis could feel like.

How do we keep that from happening? By acting soon to gradually phase in plans to raise taxes and cut spending. There are, after all, only two ways to close a deficit. Spend less money or raise more money.

Should we start cutting the deficit immediately? No. In the short term, the most important thing we can do is to keep the economy growing by keeping taxes low and giving cash-needy families money to spend in stores and restaurants. In a few years, the economy will be healthier and that's when we need to phase in a plan to raise taxes and reduce spending.

What does government spending look like? Three out of five dollars go to Medicare/Medicaid, Social Security, and Defense. Another 20 percent goes to discretionary spending on things like education, infrastructure, and research. The rest includes programs to help the poor, which we shouldn't stop paying, and interest on the debt, which we can't stop paying. [Helpful chart to the right via Center on Budget and Policy Priorities.]

What is driving our long-term deficit? Benefits for seniors. Our long-term deficit comes from the projected growth of Medicare, Medicaid and, to a lesser extent, Social Security. As David Leonhardt explained, "it is the result of baby boomers' having paid far less in taxes than they will draw in benefits."

I've heard our deficit problem is basically a health care problem. Why don't we just focus on fixing health care? "Fixing" health care is like "fixing" education -- a complicated and politically fraught goal that will take decades of wrangling, compromising, and evaluating what's working. On the other hand, we can start to fix Social Security by simply tweaking the benefits formula tomorrow. We can fix our tax system by changing income rates tomorrow. For health care reform, there are a thousand ideas (many of them very good!) but no definitive answers. Rather than wait and see, let's make other changes slowly.



What should we do? There are many answers to this question, but I'll share mine. We should raise taxes and cut spending in a way that promotes growth and protects the neediest. If I had to sum up my plan in two ideas, they would be (1) higher taxes for almost everybody and (2) fewer benefits for the rich.