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Mounting interest

With the public debt rising toward 90 percent of the economy by 2020, interest payments are forecast to consume nearly 16 percent of federal spending.

Interest payments as a percentage of annual federal spending

ACTUAL

PROJECTED

INTEREST PAYMENTS

Mandatory and discre- tionary spending

TOTAL SPENDING

PUBLIC DEBT

In trillions of dollars

$7.55

2009

$9.22

2010

SOURCE: Congressional Budget Office

$10.51

2011

$11.58 $12.47

2012 2013

$13.33

2014

$14.26

2015

$15.3

2016

$3.52 trillion

$3.62 trillion

$3.8 trillion

$3.72 trillion

$3.84 trillion

$4.07 trillion

$4.3 trillion

$4.59 trillion

$4.81 trillion

$5.03 trillion

$16.4

2017

$17.55

2018

$5.36 trillion

$18.87

2019

$5.67 trillion

$20.29

2020

THE WASHINGTON POST

Panel will tackle national debt

PARTISAN DIVIDE IS A CONCERN

Both sides say problem must be addressed

by Lori Montgomery

A presidential commission will

convene Tuesday at the White House to address what leaders of both parties agree is one of the greatest threats to the country’s economic future: the rising na- tional debt. Official forecasts suggest that without sharp changes in federal spending or tax collections, the United States could enter into a downward spiral of indebtedness that by the end of this decade would erode the country’s ability to educate its children, care for the elderly or mount a robust na- tional defense.

Republicans and Democrats

alike say the fiscal challenges have been too long ignored. But with the two parties feuding over health-care reform, Wall Street regulation and a host of other is- sues — and the economy still un- certain after a deep recession — there is considerable doubt that they could join hands to fend off a still-distant potential crisis. “It would take a miracle,” agreed Senate Majority Whip Richard J. Durbin (D-Ill.). “But,” he said, “I believe in miracles.” Durbin is the highest-ranking

lawmaker among a dozen mem- bers of Congress on the commis- sion, which also includes six presidential appointees. The pan- el has until Dec. 1 to devise a plan to stop a federal borrowing binge that exploded during the recent recession and will only get worse as retiring baby boomers tap into federal retirement programs. The gulf between the two par- ties is vast. No budget commis- sion has managed to spur action since 1983. And a host of interest groups is lining up to rally the public against any solution that involves higher taxes or cuts to fa- vored programs — particularly Social Security, which members of both parties consider the ripest target for compromise. Even sup- porters of the commission are not optimistic: House Majority Lead- er Steny H. Hoyer (D-Md.), a vocal advocate, said the most he ex- pects is “a good message with re- gard to the magnitude of the problem.”

But panel members from both

parties say the recent experience of Greece, deeply in debt and beg- ging other countries to help pay its bills, provides a vivid incentive to set aside ideological differenc- es and work together. “After stop- ping a terrorist with a weapon of mass destruction, this is the sin-

Long-term budget problems

With the nation on the brink of a massive demographic shift, the rising cost of social insurance programs for the elderly will overwhelm the federal budget unless benefits are reduced or taxes are raised above the historical average.

ACTUAL PROJECTED

$30

Revenue

10 15 20 25

5 Social Security

2000 2005 2010 2015 2020 2025 2030 2035 0

NOTE: Does not include interest on the debt. SOURCE: Congressional Budget Office

gle most important issue we con- front as a nation,” said Sen. Judd Gregg (R-N.H.), a commission member.

Republican Sen. Tom Coburn

(Okla.), a physician known as “Dr. No” for relentlessly blocking Democratic initiatives, already has sent fellow commission mem- bers a binder full of ideas for cut- ting wasteful programs — low- hanging fruit that he said could build public trust before a debate about higher taxes. Coburn also has spoken with Andy Stern, president of the Service Employ- ees International Union and one of the commission’s most liberal members, and found “a lot of areas where we think we can work together.”

“If this commission is even

halfway successful, it’s a big win for Obama. But I don’t think any- body on the commission is going to look at it that way,” Coburn said. “The problems are too big. This is about our country.”

Government’s role

At the very least, the Commis- sion on Fiscal Responsibility and Reform will mark the beginning of a national conversation about the role of government in Amer- ican society. Social Security, Medi- care and Medicaid — popular pro- grams that guarantee income support and universal health cov- erage to people older than 65 — are growing faster than tax rev- enue as medical costs rise and the population ages. In the coming decades, the three programs are forecast to dwarf all other spend- ing and force the Treasury to bor- row to keep them afloat. That crisis seemed distant until the recession hit, causing tax col- lections to tank and federal spending to increase as policy- makers scrambled to avert an eco- nomic collapse. The public debt is forecast to rise from less than 40 percent of the economy to more than 60 percent by the end of this year, its highest level since 1952.

THE WASHINGTON POST

The debt will hit 90 percent by 2020 under President Obama’s budget, according to the non- partisan Congressional Budget Office, a level last seen in the af- termath of World War II. Meanwhile, the CBO forecasts

that interest payments will rise from less than $200 billion a year to more than $900 billion. At that level, debt service would eat up nearly 20 percent of all federal spending, according to the CBO, and more than 4.5 percent of the economy — the highest level since the government began tracking net interest payments in 1962. Research by economists Car- men M. Reinhart of the Univer- sity of Maryland and Kenneth Ro- goff of Harvard has found that public debt in excess of 90 per- cent of the economy is often the tipping point at which nations lose the confidence of their credi- tors and tumble into crisis. “We’re facing a situation that is far worse than we’ve ever seen in the past,” said Charles Konigs- berg, director of a separate debt- reduction task force at the Bipar- tisan Policy Center. “The last time the debt was this high was at the end of World War II. But then we owed the debt to ourselves. Now those interest payments are flow- ing out of the country” to China and other foreign investors. “Greece is sinking on debt and

deficit. Spain’s next, Portugal’s next. How’d you like to be the United States of America when China pulls the tin cup and says, ‘We don’t want T-bills, we want money’?” commission co-chair- man Alan K. Simpson, a former GOP senator from Wyoming, said on “Fox News Sunday.” “Now, that’s where we are. This is seri- ous business.”

Stabilizing borrowing

Alarmed by the forecast but un- willing to act without Republican cooperation, Obama formed the commission to stabilize borrow- ing by 2015. If 14 of 18 members

Area above the revenue line indicates the deficit

Other federal non-interest spending Medicare and Medicaid

sign on to a plan, congressional leaders have pledged to put it to a vote. To succeed, the commission must overcome deep skepticism among members of both parties. Republicans view the panel both as a delaying tactic to postpone action on the budget until after this fall’s midterm elections, and as a stalking horse for higher tax- es, particularly a European-style value-added tax. Commission members such as Reps. Paul D. Ryan (R-Wis.) and Jeb Hensarling (R-Tex.) argue that taxes should be kept low and that Medicare and Social Security should be radically restructured, exposing the elderly to greater financial risk.

Liberal Democrats, on the oth- er hand, fear the panel will en- dorse spending cuts to avoid rais- ing taxes far above the historical U.S. average. Commission mem- bers such as Reps. Xavier Becerra (D-Calif.) and Jan Schakowsky (D-Ill.) argue that Democrats should not sacrifice the social safety net on the altar of deficit reduction. Becerra was particularly dis- missive of Coburn’s suggested cuts, which include job-training and education programs. “It’s easy to say you’re going to reduce the deficit by killing programs that have raised up the middle class,” Becerra said, “but that doesn’t mean you solve the prob- lem for America.” The panelists said they are will- ing to consider spending cuts and tax increases, however, which budget experts agree is the only responsible solution. At the com- mission’s first meeting, promi- nent economists from both par- ties, including Federal Reserve Chairman Ben S. Bernanke, will underscore that message. The White House also hopes to

sell that message to the public. In that regard, the commission has gotten off to a slow start. As of Monday, it had no Web site, no plans for public participation in its monthly meetings and no budget for outreach. Executive Director Bruce Reed, who is on leave from the Demo- cratic Leadership Council, said the commission will partner with other groups to get the word out, including the Peter G. Peterson Foundation, which will hold a fis- cal summit Wednesday featuring former president Bill Clinton. And in June, commission mem- bers plan to participate in a 20- city electronic town hall meeting on the budget organized by the nonprofit America Speaks. But success or failure ultimate- ly lies with the lawmakers. Asked whether the parties can work to- gether, Gregg said: “Who knows?” He added: “We have to wait un- til we get around the table and start talking to see if it can hap- pen.”

montgomeryl@washpost.com

$187 billion

5.3%

$209 billion

5.8%

$244 billion

6.4%

$298 billion

8%

$365 billion

9.5%

$440 billion

10.8%

$520 billion

12.1%

$596 billion

13%

$675 billion

14%

$755 billion

15%

$834 billion

15.6%

$916 billion

16%

BANKING

U.S. plans large stock sale to divest of Citi

The Treasury Department said

Monday that it will begin selling 1.5 billion shares of Citigroup as part of a plan to divest of its 27 percent ownership position in the bank. Morgan Stanley is acting as the

government’s adviser on the deal and arranging the sale. After it is completed, the government will be left with about 6.2 billion Citi shares. “Treasury expects to pro- vide Morgan Stanley with author- ity to sell additional shares after this initial amount,” according to a government statement. Treasury officials have said

that they plan to sell the stock in increments over several months. It is on track to be the second-

largest stock sale in history. At current prices, the sale of the ini- tial 1.5 billion shares could be worth more than $7 billion. The government’s shares are worth about $36 billion at current prices. Citigroup closed at $4.61 a share on Monday.

EARNINGS

Energy incentives boost Whirlpool results

Whirlpool stock surged 10 per- cent on Monday after the appli- ance maker posted a first-quarter profit of $164 million, more than double the $68 million from last year’s period. The company said federal rebates for energy-effi- cient appliances pulled shoppers back into stores, helping its rev- enue rise 20 percent, to $4.27 bil- lion. The results show that shoppers are resuming purchases of “big-

EARNINGS

ticket” items such as washers and refrigerators, whose sales had been hurt by the recession. The slump depressed Whirlpool’s profit and caused it to cut jobs and close a factory.

Whirlpool declined to say how much the federal stimulus pro- gram boosted sales. The $300 million program offered rebates to consumers who purchased “EnergyStar” products.

— Associated Press

The government received the shares as part of its bailout of the firm during the height of the fi- nancial crisis. Overall, Citi re- ceived $45 billion in federal aid. That included a $20 billion loan and another $25 billion that was offered in exchange for common stock.

If the plan proceeds, Citi will

have cut nearly all of its ties to the $700 billion Troubled Assets Re- lief Program. It has repaid the $20 billion government loan. The sale authorized Monday does not include the govern- ment’s preferred securities in Citi or common stock warrants, “but we think the sale reduces some of the stigma attached to the gov- ernment investment,” Matthew Albrecht, a financial analyst for Standard & Poor’s Equity Re- search, said in a research note. A Citigroup spokesman de- clined to comment.

— Renae Merle

DIGEST

TUESDAY, APRIL 27, 2010

CHARLIE NEIBERGALL/ASSOCIATED PRESS

Caterpilar profit, in millions

$233

The heavy-equipment manufacturer reported first-quarter earnings of $233 million, com- pared with a loss of $112 million a year earlier, and said it’s planning to ramp up production to meet demand. Revenue fell 11 percent, to $8.24 billion, missing analyst expectations.

— Associated Press

ALSO IN BUSINESS

 Humana’s net income jumps

26%: Health insurer Humana re- ported a 26 percent increase in first-quarter profit, pulling in $258.8 million mostly through an expanded Medicare Advan- tage business unit and a gain at- tributed to improvements in claims processing. Humana said a rise in com- mercial business, which has struggled amid fewer employer- sponsored enrollments, offset a membership drop. It raised its profit target above analyst estimates Monday. Rev- enue grew nearly 10 percent, to $8.44 billion. Humana’s Medicare Advan-

tage membership grew to 1.74 million as of March 31, an in- crease of 273,400 members, or 19 percent, from a year ago.

 American delays Chicago-Bei-

jing service: American Airlines said Monday that it will delay the beginning of its daily, nonstop service from Chicago to Beijing until next month because China has not given it viable takeoff and

landing slots. The unit of AMR Corp. said it applied for slots in October 2009. The carrier planned to start serv- ice from Chicago to Beijing begin- ning Monday, it said. The company now aims to be- gin the flights on May 4. Custom- ers affected were placed on other flights, offered full refunds or re- scheduled.

 Verizon won’t offer Google’s

Nexus One: Verizon Wireless re- treated Monday from plans to of- fer service for Google’s Nexus One phone, keeping the carrier’s more than 90 million customers out of reach as the Internet giant hopes to compete with popular smartphones such as Apple’s. The breakdown of the deal sig- nals that Verizon, the largest U.S. mobile-phone company, may view Google as a competitor rath- er than a partner when it comes to Nexus One sales, said analyst Colin Gillis at BGC Partners in New York.

— From news services

Building a new Citi.

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