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Wednesday, November 02, 2005

Restoring Fiscal Discipline

I don't agree with every point made here, but I agree with the thrust of the argument. Robert Samuelson's main theme is a simple one. Closing the budget deficit requires either increasing revenue by increasing taxes or cutting spending. However, I want to be careful and not overplay the problems the deficit poses. As a percent of GDP, we've had bigger deficits. It's the trajectory and the means by which the deficit has come about that cause concern. The debt is headed towards burdensome levels without any signs of discipline and we need a sensible plan now to start addressing it. That doesn't mean cutting spending by hundreds of billions tomorrow or increasing taxes suddenly and substantially. That would be highly contractionary and counterproductive overall. Pushing too hard now on the deficit issue gives an excuse to cut deeply into existing programs and that is not needed. But a plan for the long-run is needed, fiscal sanity is needed, and that will require, I think, both sides to give. How that comes about politically is a mystery in the current environment, but I don't see how the minority party can take the lead in solving the political impasse.  I have this idea that adults do their best to solve problems even when they're hard problems to solve, and while my first preference is to vote the deadbeats out at the ballot box, it looks like budget rules to bind congressional behavior may in fact be necessary:

Fiscal Phonies, by Robert J. Samuelson, Washington Post: The scramble by congressional Republicans and White House officials to show they're serious about dealing with the budget recalls the classic 1951 novel "The Catcher in the Rye," whose main character, Holden Caulfield, denounces almost everyone as a "phony." Well, on the budget, most Republicans are phonies. So are most Democrats. The resulting "debates" are less about controlling the budget than about trying to embarrass the other side. Anyone who's serious about curbing federal spending and budget deficits could fashion a plan that would do both without eliminating one penny of existing government benefits or raising any existing tax. Here's how: First, you'd repeal the Medicare drug benefit, scheduled to take effect in 2006. For the next five years ... the savings would total about $300 billion... Preserving an existing drug benefit for low-income recipients might reduce savings by 5 percent. Second, you'd repeal a tax cut scheduled for 2006 that would benefit mainly people in the top brackets ... savings: about $30 billion ... Third, you'd eliminate all "earmarks" in the recent highway bill. ... The highway bill contained $24 billion in earmarks... [T]his package would probably save more than $300 billion from 2006 to 2010 -- still not enough to eliminate prospective deficits. Its chances are close to zilch. .... Countless Democrats and Republicans routinely denounce deficits, but few will repeal a program that relies on literally trillions of dollars of future borrowing.

What have Republicans actually done? Last week the Senate Budget Committee endorsed spending "cuts" of $39 billion. That covers five years ... So the "cuts" amount to a mere 0.3 percent ... of projected spending. But wait. Many advertised "cuts" aren't cuts at all. In weird budget accounting, they're "offsetting receipts" ... It ... turns out that the $39 billion in "cuts" ... probably won't reduce the budget deficit by that amount. ... And Democrats? More phonies. They rant about President Bush's irresponsible deficits, which they blame on his tax cuts for the rich. ... Okay, let's restore them to their pre-Bush levels. From now until 2010, the extra revenue would average slightly more than $30 billion a year... Sure, you could squeeze the rich for a few more billion by repealing some other tax cuts, but the central point would remain: There's a basic mismatch between the existing taxes and existing spending commitments. Neither party yet faces this candidly, because the only way to solve it is either to raise taxes or cut benefits. ... But who cares about the truth? For most politicians, the real problem is to appear principled even when they're not. If that's not phony, what is?

    Posted by on Wednesday, November 2, 2005 at 01:43 AM in Budget Deficit, Economics, Politics, Press, Taxes | Permalink  TrackBack (0)  Comments (11)


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