The outlook is still pretty grim, but setting parameters is an important beginning. By Mark Willen, Senior Political Editor July 2, 2010 It was a small step -- in fact, a very small step -- but at least it was a sign of seriousness. At the third public meeting of the bipartisan debt reduction commission, the Democratic cochairman, Erskine Bowles, said what Democrats don’t want to hear: That spending cuts would have to outweigh tax hikes in reaching a balanced budget. Bowles made it clear that achieving any real progress will require a host of simultaneous moves: deep cuts in domestic and defense spending, new ways to trim health costs, a reining in of entitlement programs and yes, tax increases, too -- that last being something Republicans and conservatives didn’t want to hear. More important, Bowles offered specific goals, saying spending and revenue should be about 21% of gross domestic product. Today, revenue is at 15% of GDP, low by historical standards, while spending is at 24%, high by historical standards.Bowles chose to make his pronouncements on a day when the Congressional Budget Office delivered a report that could only be described as horrific. The CBO looked at the budget trajectory under two scenarios. Under current law, in which the Bush tax cuts expire and Congress’ pay-as-you-go rules are observed, the public debt will rise to 80% of GDP in 2035, from 62% at the end of this year. Interest payments on the debt will rise to 4% of GDP, from 1% today. The second (and more realistic) scenario assumed Congress would extend the lower tax rates, the patch that keeps the alternative minimum tax from hitting the middle class, higher payments to doctors and a number of other tax breaks and spending programs that are routinely set to expire but are regularly renewed. Under that scenario, the debt will rise to 185% of GDP in 2035 and interest payments on the debt would jump to nearly 9% of GDP. Neither scenario is sustainable, and the CBO warned that the longer we wait to change course, the harder it will be to do so. The reports identified two main causes for the skyrocketing debt -- health care costs and demographics. The obvious conclusion is that the U.S. needs to do a lot more to slow health care costs and to rein in entitlements, including Social Security. Advertisement Bowles told Democrats on the debt panel, who trumpeted savings in the new health care law, that it just didn’t go far enough. He also pointed to the need to cut defense as well as domestic programs, saying the U.S. can’t afford to keep being the world’s policeman. And he urged reform of the tax code to make it simpler and to eliminate a lot of tax breaks, saying there are many that aren’t having the intended effect. There was nothing startling in any of this, and for the 18-member panel to reach an agreement, it will take a herculean effort. But two other developments show that it may not be hopeless. Last week, the No. 2 Democrat in the House, Steny Hoyer of Maryland, suggested that President Obama’s campaign pledge not to raise taxes on the middle class may have to be broken. And this week, GOP House leader John Boehner of Ohio suggested raising the Social Security retirement age and means-testing benefits. Both statements were quickly attacked by the opposing parties and are sure to be used this fall in negative campaign ads. But in fact, both steps are probably essential if there’s to be any real deficit reduction. Hoyer and Boehner showed a lot of courage in their candor; their attackers showed how hard it is to do that. The problem is that lowering the debt is going to require a lot of common sacrifice -- in short supply in this very partisan atmosphere. Then there is the whole question of the fragile economy. There’s a raging debate in the U.S. and abroad over whether fragile economies can afford a pivot now from stimulus to deficit-reduction. Democrats say it’s too early to do that; Republicans say the debt won’t wait. Both arguments have merit, which is the problem. The economy is fragile, and rash cutbacks could lead to a double dip recession. But the debt also threatens growth, even in the short term. And as the CBO and others make clear, the longer we wait to tackle the debt, the harder it will become. Advertisement That means a very tricky economic balance is called for -- one that would be difficult to prescribe in the best of circumstances, and that will be impossible if partisanship trumps our nonpartisan common interests. A lot is riding on the deficit panel -- and on the lawmakers who will consider its recommendations as early as December.