Tax Analysts Blog

Fixing the Deficit Problem is More than Arithmetic

Posted on Oct 18, 2010

Americans are overweight and so is their government. The diet plans are proliferating. Here are some of the latest.

The Bowles Diet. I shall weigh 180 pounds for my whole adult life. Erskine Bowles is the Democratic co-chairman of the President's deficit reduction panel (scheduled to release its findings in December). He has proposed limiting federal spending and taxes to 21 percent of GDP. Senator Corker of Tennessee has done him one better and proposed an 18 percent cap. (Reminds me of the 7 minute abs scene in Something About Mary.)

The Lazear Diet. I will spend one percent less on food every year. Ed Lazear was Chairman of President George W. Bush's panel of economic advisors. In a Wall Street Journal op-ed he proposed limiting growth of federal spending to in the rate of inflation minus one percent--in other words, a real inflation-adjusted reduction in spending of one percent each year.

The Pledge Diet. I will weigh what I weighed in 2008 for the rest of my life. In September Republicans released their "Pledge to America." It recycles a plan that has been kicking around recently to freeze federal discretionary spending at 2008 levels.

All these plans suffer from two massive shortcomings. First, they do no take into account extra revenue needed in the future. As we all know we have an aging society and spiraling health care costs. You can see that is the adjacent chart from CBO. In others words, there is no expansion in benefits provided to each individual (creeping socialism), there is just an expansion of people needing the same benefits (demographic change). Capping or cutting government spending to make it comparable with anything we have seen in the past may sound like we are just maintaining the status quo and preventing the rise of big government. But in terms of its effects it is probably more accurate to describe as a major cutback in what middle class America gets from its government.

Second, these across-the-board cuts are not specific. They showcase the much desired gain without any illustration of the much despised-pain.

The great deficit debate--one like we have never had before--is about to begin. Listen for specific proposals with large impact. Listen for concrete plans. If you are not hearing that you are only hearing good intentions. Until then pass me another piece of cheesecake.

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