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Yes, tax cuts increase the deficit

There are a couple of weird arguments that come up when you talk about tax cuts. One is that "tax cuts do not cause deficits. Spending does." This is pretty easy to test: If we cut taxes this year but leave spending unchanged, will anything happen to deficits next year? The answer, of course, is yes. They will go up. Fast.

Now, you could say that tax cuts don't have to cause deficits, and that's true. But then they need to be accompanied by spending cuts equal to their size. (The same goes for spending increases, of course, which can be offset by tax increases.) But the GOP is not proposing spending cuts equal to the size of the Bush tax cuts (and, to be fair, President Obama is not proposing spending cuts equal to the size of his reduced extension of the Bush tax cuts). So these tax cuts will increase the deficit by $3.9 trillion over the next 10 years.

For awhile, conservatives tried to dodge the need to propose spending cuts -- which are, after all, terribly unpopular -- by saying that the tax cuts would do the work for you: Since revenues were going down, spending would simply follow at some later point, like night comes after day. But as William Niskanen, former chairman of the libertarian Cato Institute, has argued, that theory wasn't just wrong. It was disastrously wrong.

"My study finds that there was a strong negative relation between the federal spending percent of GDP and the federal revenue percent of GDP from 1981 through 2005, even controlling for the unemployment rate," writes Niskanen. So when you look at the numbers, the reality is that when revenue went up, spending went down. And when revenue went down, spending went up. When Congress is being fiscally irresponsible, it simply is fiscally irresponsible, and it both cuts taxes and increases spending. And then when it needs to be responsible again, it cuts spending and increases taxes.

What's worse, Niskanen said, is that this belief has robbed the budget of its traditional guardians. "An increased belief in the 'Starve the Beast' assertion has substantially reduced the traditional Republican concern for fiscal responsibility," he continued, "leading to a pattern of tax cuts, increased spending, and increased deficits."

In the absence of offsetting spending cuts, tax cuts increase the deficit. And when a party is fooling themselves and their supporters into believing otherwise, they are embracing a theory that has been proven to increase the deficit. They are as much pro-deficit spending as they are pro-tax cuts.

By Ezra Klein  | September 15, 2010; 10:47 AM ET
Categories:  Budget, Taxes  
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Comments

I frequently read:

1. Starve the beast does not work. It has been proven not to work. So there.

and

2. Oh, if only we weren't saddled with this awful deficit! The wonderful things we could spend money on! So sad!

Posted by: ostap666 | September 15, 2010 11:13 AM | Report abuse

"There are a couple of weird arguments...."

Not weird, but DISHONEST.

The richest 1% are increasingly sucking the wealth from the country and you have idiots in the middle-class (or lower) running around claiming the richest people are victims. I can't believe how stupid and gullible so many Americans are.

Posted by: lauren2010 | September 15, 2010 11:16 AM | Report abuse

Of course the Republicans are lying about deficits. Nobody cares about deficits right now, so why shouldn't they lie?

Posted by: stonedone | September 15, 2010 11:26 AM | Report abuse

I'm not sure I understand the politics of the GOP position, given the polling numbers on letting the top part of the tax cuts expire. Are they trying to fire up the base? Cater to the Tea Party?

Posted by: jduptonma | September 15, 2010 11:34 AM | Report abuse

"This is pretty easy to test: If we cut taxes this year but leave spending unchanged, will anything happen to deficits next year? The answer, of course, is yes. They will go up. Fast."

Unless there is more taxable economic activity, due to tax cuts or completely unrelated factors, that make up for revenue lost due to tax cuts. As a practical matter, it may be mostly a two-factor calculus, but it's not entirely a two-factor calculus. There is a 3rd factor, and that's the amount of taxable activity. If neither spending nor tax rates change, but taxable economic activity increases or decreases, revenues increase or decrease correspondingly.

Posted by: Kevin_Willis | September 15, 2010 11:36 AM | Report abuse

With all the tea party loons getting closer and closer to the steering wheel of the GOP itself, the old line GOP is facing a different sort of "Feed the Beast?" quandary.

Posted by: bdballard | September 15, 2010 11:37 AM | Report abuse

Questions is straight forward - with this simple reasoning, why is it so difficult for President Obama and Dems to argue (rightly) how irresponsible GOP is?

My two cents - Obama and Dems simply do not want to point out this GOP failure and 'incoming trap for Americans' for some kind of fear or simply lack of clarity. Granted, stimulus not producing jobs as expected (Greenspan again with that statement today) and Obama not balancing spending for the proposed middle class tax cuts; both these reasons would be making Dems 'chicken run'. But those compromises are making them 'not to talk' about the colossal mismanagement GOP is about to heal upon us and that is disservice to Americans.

Posted by: umesh409 | September 15, 2010 11:38 AM | Report abuse

"and, to be fair, President Obama is not proposing spending cuts equal to the size of his reduced extension of the Bush tax cuts"

And, to be even more fair, he did not propose tax increases to offset his stimulus plan, or the TARP plan before it, which was before his administration but one that he never the less voted for.

Posted by: Kevin_Willis | September 15, 2010 11:39 AM | Report abuse

@umesh: "why is it so difficult for President Obama and Dems to argue (rightly) how irresponsible GOP is?"

Well, it's not, and they actually have. To go a lot further, as the Democrats more progressive supporters might like, however, would just be preaching to the choir. They would have to decide how many people right-of-left-of-center they want to alienate in order to get more atta-boys for the "professional left".

Posted by: Kevin_Willis | September 15, 2010 11:44 AM | Report abuse

Doesn't Niskanen's study simply say that the government steps in when the economy goes bad, and retreats when things are going fine again? Isn't this exactly as it should be (except from the Libertarian perspective)?

Posted by: Marc12345 | September 15, 2010 11:46 AM | Report abuse

"For awhile, conservatives tried to dodge the need to propose spending cuts -- which are, after all, terribly unpopular -- by saying that the tax cuts would do the work for you: Since revenues were going down, spending would simply follow at some later point, like night comes after day. But as William Niskanen, former chairman of the libertarian Cato Institute, has argued, that theory wasn't just wrong. It was disastrously wrong."

Uh huh. And it's equally disastrously wrong to argue that spending will work for you because it's stimulative. Like putting windows in empty buildings. Gorge the Beast and Starve the Beast are two sides of the same free lunch, something for nothing coin. And the hapless American public is caught right in the middle of this breathtakingly irresponsible game of chicken.

Posted by: bgmma50 | September 15, 2010 11:55 AM | Report abuse

"Doesn't Niskanen's study simply say that the government steps in when the economy goes bad, and retreats when things are going fine again? Isn't this exactly as it should be (except from the Libertarian perspective)?"

Niskanen's study controls for unemployment. I think it basically just describes four things:

In the 1980s, Reagan wanted to cut taxes and build up the military.

In the 1990s, Clinton raised taxes to reduce the deficit, and also didn't need to spend as much on the military in the wake of the Cold War's end.

In the 2000s, Bush cut taxes and launched two wars.

The long term trend for spending as a percent of GDP is up due to social spending. The long term trend for tax revenue as a percent of GDP is down due to tax cuts and a particularly nasty recession at the end of the time period being studied.

Posted by: justin84 | September 15, 2010 12:02 PM | Report abuse

Kevin_Willis, I do not think you are right about TARP.

Read Politico story that TARP has actually not cost anything to Fed. If you are among those people who think TARP was wrong, then I cannot help you. (You may have views like one of those of Tea Party folks where everything done in last 2 years is wrong....)

Even AIG is planning to repay and it will come.

No, I am not apologists for Wall Street and I do not work for them too.

But what I think is this attitude of 'everything wrong' without any reasoning; I am not sure where it goes.

As far as preaching to choir - no I meant to explain the situation to anyone with a reasonable mind. When GOP is consciously putting forward a 'gamblers budget' (Ref. GOP Senate leader McConnell's no-plan plan) which will essentially make us much more bankrupt than what we are today, it is the job of Dems to explain that.

It is really amazing how a destructive agenda is sustained by GOP in an old, mature democracy like America.....

Posted by: umesh409 | September 15, 2010 12:06 PM | Report abuse

Bgmma50: "And it's equally disastrously wrong to argue that spending will work for you because it's stimulative... Gorge the Beast and Starve the Beast are two sides of the same free lunch..."

No. The difference is between short-term and long-term. In the short-term, deficit-increasing measures can help to cure a recession. These can be either spending increases or tax cuts, or both. For effectiveness, it matters how these are structured, who gets them, etc. They should also be ended when the business cycle turns upward.

The issue here is that in the short-term, tax cuts for the richest actually don't do that much for recession-fighting.

On the other hand, in the long-term, deficits crowd-out private investment. But we also now know that tax cuts don't pay for themselves, i.e. tax cuts do not close the deficits that are caused when the tax cuts are made without spending cuts.

The real issue on the long-term spending side is how to structure government spending so that total economic welfare enhancement from defense, safety net, etc. OUTWEIGHS any allocative efficiency loss in the private economy; i.e. we get a net plus. Once you have a plan, then structure long-term taxes to balance the budget, and keep your eyes open for better ways to do things.

Posted by: Lee_A_Arnold | September 15, 2010 12:22 PM | Report abuse

Bgmma50: "And it's equally disastrously wrong to argue that spending will work for you because it's stimulative."

I think most serious economists disagree with this.

Posted by: jeirvine | September 15, 2010 12:26 PM | Report abuse

"No. The difference is between short-term and long-term. In the short-term, deficit-increasing measures can help to cure a recession. These can be either spending increases or tax cuts, or both. For effectiveness, it matters how these are structured, who gets them, etc. They should also be ended when the business cycle turns upward." posted by Lee_A_Arnold

Short term or long term, if the deficits increase debt to unsustainable levels, which is what is happening, it doesn't matter. It especially doesn't matter if the recession is a balance sheet recession, and the spending fails to achieve the objective.

"The issue here is that in the short-term, tax cuts for the richest actually don't do that much for recession-fighting."

No it isn't. The tax cuts for the richest are only $700 billion. The tax cuts for the rest are $3 trillion. Recession is going to be the least of our problems if they are extended indefinitely.


"Once you have a plan, then structure long-term taxes to balance the budget, and keep your eyes open for better ways to do things."

That would be very nice. Who, exactly, is doing that?

Posted by: bgmma50 | September 15, 2010 1:01 PM | Report abuse

"I think most serious economists disagree with this.

Posted by: jeirvine"

jeirvine, Tax cuts and spending increases are all stimulative. The issue is the kool-aid drinkers on both sides who have managed to persuade themselves that they pay for themselves. Maybe, sometimes, if they are properly targeted, limited, and implemented, they can pay for themselves. But that is not what's at issue here.

Posted by: bgmma50 | September 15, 2010 1:06 PM | Report abuse

If spending in 2005 was where Bill Clinton's FY2001 budget said it would be in 2005, the government would have run a surplus in 2005, tax cuts and all.

Instead, spending was substantially higher in 2005 than the FY2001 budget said it would be in 2005. So, instead of running a surplus in 2005, the government ran a deficit in 2005.

So, what caused the 2005 deficit, tax cuts or spending?

Too much government spending is the disease. High tax rates and high deficits are its twin symptoms.

Posted by: aindik | September 15, 2010 1:08 PM | Report abuse

Tax hikes in combination with meaningful and permanent cuts in spending will have to take place to prevent the American economy from imploding. With a $13.4 trillion debt and unfunded Medicare and Social Security issues, the United States will have no choice but to raise taxes at some point in time or its citizens will have to face a greatly changed lifestyle. With America's current public debt costing taxpayers over $400 billion annually in interest payments alone (more than the individual GDP of Saudi Arabia, Norway and Taiwan) the situation cannot be allowed to continue without severe repercussions. Here's an article on the U.S. debt situation:

http://viableopposition.blogspot.com/2010/08/united-states-waiting-on-debt-downgrade.html

Posted by: Baywoodfarm | September 15, 2010 1:21 PM | Report abuse

First of all, its our money. The smart thing to do is let the people who made the money keep it. The idea of cutting federal spending is appropriate. I suggest doing what any business would do--cut the payroll. Reduce pension costs--cut federal pensions. If Congress is afraid to cut these programs, let them start laying off federal workers.

Posted by: hrumphgrumble | September 15, 2010 1:59 PM | Report abuse

"One [weird argument] is that "tax cuts do not cause deficits. Spending does." This is pretty easy to test"

Yes, Ezra, it IS easy to test! Now, do this with me....look up federal tax revenue and spending in 2000, the last year before Bush tax cuts went into effect. Now, fast forward to 2008, the last year before Obama took office, and tell me what the revenues and spending were.

I finally agree with Ezra on something: this is REALLY EASY. Even at the lower Bush-enacted tax RATES, tax REVENUES increased 20% from 2000-2008. The problem is SPENDING increased 95%!!!!

Now Ezra....tell me again what caused the exploding deficit?

I have a dream this afternoon....I dream of a day when progressives like Ezra will be able to use common sense and a calculator at the same time.

Posted by: dbw1 | September 15, 2010 2:37 PM | Report abuse

"Tax cuts do not cause deficits. Spending does" is a mis-phrasing of the argument to make it look dumb.

I think we can all agree (at least, those of us who think the government shouldn't run deficits) that the deficit exists either because the government collects too little or because it spends too much. The disagreement is on which of those is the case.

I happen to think it's the latter. In 2008 before the downturn, government collected $2.5 trillion (in constant 2005 dollars). That's more than the government spent every year until 2005. If the government can't run itself on $2.5 trillion in revenue, it has a spending problem, not a revenue problem.

The government is not the middle class worker who needs a second job because he doesn't earn enough to pay his bills. The government is the celebrity with mismanaged finances, who collects a bunch of money but spends even more than he collects. The answer isn't to collect more money. The answer is to spend less.

Posted by: aindik | September 15, 2010 2:51 PM | Report abuse

Correction. Government collected $2.3 trillion in inflation-adjusted dollars in 2008. $2.5 trillion in actual dollars. My larger point stands.

Posted by: aindik | September 15, 2010 3:19 PM | Report abuse

Ezra, when it comes to taxes, spending, and the budget you're trapped by rationality. Remember the first George W Bush Administration when Treasury Secretary Paul O'Neill complained to Cheney about the adverse effects the proposed Bush tax cuts would have on the budget deficit, and Cheney said, "Reagan proved that budget deficits don't matter"?

Did Cheney mean they didn't matter to the economy? No. He meant they didn't matter politically. And his memory was correct: Bush went on to be reelected, thus extending the Republican template for electoral success: (a) pledge to cut taxes and do so once elected; (b) promise to balance the budget but ignore that promise once elected; (c) attack spending but avoid specifics. This is the Free Lunch Strategy. It worked for Reagan in '80 so Bush/Cheney adopted it in 2000, and it worked again.

Properly, however, Cheney should have told O'Neill, "Reagan proved that budget deficits don't matter – for Republicans."

Posted by: fredbrack | September 15, 2010 3:23 PM | Report abuse

Bgmma50 :That would be very nice. Who, exactly, is doing that?"

Let's see. Obamacare creates universal coverage and ALSO reduces the long-term deficits by 2/3rds -- IF Congress sticks to paygo. Probably the savings would be greater than that. Now that is one plan. It won't be easy, and we would have to keep paying attention -- and from the whining, it appears that you want an easy plan. Unfortunately for you, since the Republicans will not agree to any tax increases whatsoever, and intend to misinform the U.S. public to hold political power, indeed intend to spend huge gobs of hidden billionaires' money to do so, the Democrats now have to promise some tax cuts to the middle class just to stay in the game. If you have a better plan, or some other reading of the situation, let's hear it.

Also, I agree the Bush Tax Cut extension shouldn't be for long, but that is a far cry from your statement that "it's disastrously wrong to argue that spending will work for you because it's stimulative." That is misleading nonsense. First off, stimulus works. Secondly, nobody ever said spending reduces deficits, which is what the Republicans are claiming for tax cuts. (Note however that the argument that some kinds of infrastructure and R&D spending is an aid to long-term growth is just as valid as the case for tax cuts.)

Posted by: Lee_A_Arnold | September 15, 2010 6:43 PM | Report abuse

Imagine if you opened a mall with 20 stores in it. Imagine if that mall was suddenly not doing very well.

Cutting taxes is like lowering the rent or giving a waiver to the stores for paying rent for a fwe months while the weathered the storm.

Spending money would be like suddenly deciding that during this struggling time period you were suddenly going to start upgrading all the features on the mall.

Is cutting taxes really the same as increasing spending?

Posted by: FastEddieO007 | September 15, 2010 8:57 PM | Report abuse

"Let's see. Obamacare creates universal coverage and ALSO reduces the long-term deficits by 2/3rds -- IF Congress sticks to paygo."

And IF they stick with the plan of taking $500 billion from Medicare. And then there's that 10 years of revenue and 6 years of expenses thing. Only in a smoke and mirrors world does Obamacare reduce long term deficits.

"it appears that you want an easy plan."

Very easy. Let. The. Tax. Cuts. Expire.
(And reverting to the spending levels of the Busy years would be icing on the cake.)


"but that is a far cry from your statement that "it's disastrously wrong to argue that spending will work for you because it's stimulative." That is misleading nonsense. First off, stimulus works."

If your point is that spending money doing things like putting windows on empty buildings is desirable because it has a stimulative effect that "works", then you have most definitely had too much of the koolaid.

"Secondly, nobody ever said spending reduces deficits, which is what the Republicans are claiming for tax cuts."

And how that is relevant to anything I said ?????


(Note however that the argument that some kinds of infrastructure and R&D spending is an aid to long-term growth is just as valid as the case for tax cuts.)

Duh.

Posted by: bgmma50 | September 15, 2010 9:43 PM | Report abuse

Bgmma50: "And IF they stick with the plan of taking $500 billion from Medicare."

Is this a cost-effective $500 billion? And, do you want to reduce the long-term deficits, or not?

Bgmma50:: "Only in a smoke and mirrors world does Obamacare reduce long term deficits."

No, the CBO says it does: if Congress sticks to paygo. Pretty much the gold standard, as far as long-term outlooks are concerned.

Bgmma50:: "Very easy. Let. The. Tax. Cuts. Expire. "

No, not an easy solution, much less a total solution, for two very different reasons: One, letting the Bush Tax Cuts expire is a very good idea but it still will not cover all the deficits in the future, and they are coming from medical costs. Two, if you let the entire Bush Tax Cuts expire right now, then we will almost immediately have a Republican government bringing them right back. The only thing "easy" about this plan is refuting it.

Bgmma50:: "If your point is that spending money doing things like putting windows on empty buildings is desirable because it has a stimulative effect that "works", then you have most definitely had too much of the koolaid."

If your point is that this is in any way different in economic analysis from any other regular form of economic activity, then your snarkiness won't be keeping up.

Bgmma50: And how that is relevant to anything I said ?????"

Sorry, I assumed that you were making another argument. I wrote "nobody ever said spending reduces deficits" because you originally wrote "it's equally disastrously wrong to argue that spending will work for you because it's stimulative." First I tried to imply that the word "stimulus" would normally signal a discussion about short-term countercyclical policy, and Niskanen's observation is about the long-term. You responded that "Short term or long term, if the deficits increase debt to unsustainable levels, which is what is happening, it doesn't matter." But this statement of yours is incorrect, because if the deficit spending or deficit tax cuts curtail the recession, then we will be in a better position to start to pay down that debt. I thought that you must know that. So I gave you the benefit of the doubt and construed that you must be writing about some other person's mistake that spending hikes, like tax cuts, "pay for themselves", i.e. pay off their own deficits.

By the way, "unsustainable levels of debt" is NOT "what is happening," but what is feared. Surely what is "unsustainable" in debt levels is related to the market's observation currently (where it is not unsustainable) and in the future, when of course debt can be reduced and even something as "small" as $700 billion is a good down payment. You always have to start somewhere, right? (Or perhaps not: you have an "easy" plan.)

Posted by: Lee_A_Arnold | September 15, 2010 11:37 PM | Report abuse


"Is this a cost-effective $500 billion? And, do you want to reduce the long-term deficits, or not?"

Aside from the questionable assumption that it will actually be implemented, transferring money from one spending program to another does not reduce deficits. It merely disguises the fact that the transferee program does not pay for itself.

"No, the CBO says it does: if Congress sticks to paygo. Pretty much the gold standard, as far as long-term outlooks are concerned."

I already answered this. For starters, that's a really big IF. And the CBO only dealt with a 10 year period that included 10 years of revenue but only 6 years of spending. Good luck with replicating that feat the next ten years.

"If your point is..."

Missed again. The point is that brainless spending just to spend because spending is "stimulative" and therefore beneficial by definition is as delusional a notion that cutting taxes pays for itself, no matter what.

“But this statement of yours is incorrect, because if the deficit spending or deficit tax cuts curtail the recession,”

They haven’t and they won’t. A trillion dollars and all we’ve gotten is some temporary blips in some data points. Our economy is in deep trouble, and the credit and debt problems that are the actual culprits have not been resolved, just temporarily swept under the table.

“By the way, "unsustainable levels of debt" is NOT "what is happening," but what is feared.”

1.3 trillion deficit in 2010. 1 .4 trillion in 2011. And the Bush tax cuts to be extended indefinity either in the amount of 3 trillion or 3.9 trillion over 10 years. It’s happening.

Surely what is "unsustainable" in debt levels is related to the market's observation currently (where it is not unsustainable) and in the future, when of course debt can be reduced and even something as "small" as $700 billion is a good down payment. You always have to start somewhere, right? (Or perhaps not: you have an "easy" plan.)

Yes, I do. Starting right here and right now. Let. The. Tax. Cuts. Expire. Or. At. Least. Extend. Them. For. A. Limited. Time. Only.

It ain’t ever gonna get any easier than that.

Posted by: bgmma50 | September 16, 2010 2:54 PM | Report abuse

Bgmma50: "It ain’t ever gonna get any easier than that."

You forgot the part about the real world: you have to sell it to John Boehner and to Mitch McConnell and to about half the voters in the country.

Bgamma50: "the CBO only dealt with a 10 year period that included 10 years of revenue but only 6 years of spending"

No, the CBO's Long-Term Budget Outlook goes out to 2035 and discusses some points even further out to 2080. It also lowballs productivity growth, and reverts medical cost increases to the current, HIGHER trend after 20 years due to lack of analytical information on ACA savings after that time. So for all we know, Obama has balanced the long-term budgets.

http://delong.typepad.com/sdj/2010/07/fiscal-policy-the-long-term-budget-outlook.html

Bgmma50: "transferring money from one spending program to another does not reduce deficits."

Bgmma50: "A trillion dollars and all we’ve gotten is some temporary blips in some data points."

This is the sort of stuff that invalidates the rest. "Transferring money from one spending program to another" may reduce deficits, or it may not. If the new program reduces costs by other provisions, then funding it with money from another program will reduce the deficit overall. "Temporary blips in some data points" ignores where unemployment would be right now without the stimulus.

Posted by: Lee_A_Arnold | September 16, 2010 4:21 PM | Report abuse

"CBO's Long-Term Budget Outlook goes out to 2035 and discusses some points even further out to 2080."

Would that be the same CBO Outlook that assumes the Bush Tax Cuts expire? Can I interest you in a Brooklyn Bridge?

"You forgot the part about the real world: you have to sell it to John Boehner and to Mitch McConnell and to about half the voters in the country."

You forgot the part about the Obama administration and the Democrats. If those folks don't have the guts to just let them expire; what makes you think that "in the future, when of course debt can be reduced", is going to happen?

"If the new program reduces costs by other provisions, then funding it with money from another program will reduce the deficit overall."

But Obamacare doesn't reduce costs. They're not even including that canard in their talking points anymore.

"Temporary blips in some data points" ignores where unemployment would be right now without the stimulus.

I'll tell you where employment isn't. It isn't at 8%. What do you think the response to Stimulus would have been had the Obama administration told everyone that unemployment would be at 9.6% and the economy still in the toiled after the expenditure of hundreds of billions of dollars.

Posted by: bgmma50 | September 16, 2010 5:52 PM | Report abuse

Bgmma50: "Would that be the same CBO Outlook that assumes the Bush Tax Cuts expire?"......"...Obama administration and the Democrats. If those folks don't have the guts to just let them expire; what makes you think that "in the future, when of course debt can be reduced", is going to happen?"

Because it obviously can be done piecemeal. Obamacare shaves the long-term deficits; letting the upperclass tax cut expire will shave deficits immediately. It isn't much, but who else is going to do what, exactly?

The CBO certainly requires that the Bush Tax Cuts expire, requires that there be NO Medicare doctor fixes, requires that the alternate minimum tax goes up, etc. For a brief definition, let's let all that stuff fall under "paygo". As in: CBO says it doesn't work unless Congress sticks to paygo. Which isn't going to happen, because of politics. So the only way to do it is piecemeal, by shaving the long-term deficits and trying to make Congress stick to paygo, however unlikely that will start out, or using the politics of the 2010 election to get $700 billion shaved off the next 10 years, and trying to make Congress stick to paygo, however unlikely that will start out: Etc. etc., and whatever else it looks like.

How else are we going to do this, but piecemeal? So we do it piecemeal and argue everything again every year: argue the doctor fix again every year. Because it isn't only YOU who doesn't have a plan -- NONE of us has a plan. The only real solution is to do it piecemeal. Because that does, in fact, slowly bring the deficits down.

The Democrats should make an explicit pitch for continuing piecemeal deficit reduction. Actually, eiher party that declares for this will be the long-term winner. I say vote Democrat because they balance wealth and welfare better (economic welfare, from microeconomics). They have a mind to protect the safety net and get every individual the opportunity to succeed.

At this moment it means the Democrats are going to have to kill the upperclass tax cut, we've already bailed these people out with the Wall St. bailout & they are paying too low capital gains taxes already -- and claim that every step of the way they are lowering the long-term deficits piecemeal.

Posted by: Lee_A_Arnold | September 16, 2010 9:54 PM | Report abuse

Bgmma50: "But Obamacare doesn't reduce costs. They're not even including that canard in their talking points anymore."

Why isn't it a talking point? Because it doesn't reduce cost much until AFTER the first ten years, so in this campaign season, that argument is a big waste of airtime. For the lack of sooner savings in Obamacare, again you have Reality to blame, in this case the special interests. But even the CBO says it reduces costs afterward, and probably keeps going.

Actually, covering everybody and getting all the demand into the system is the best way to expand the medical sector to its correct market size, and we know its productivity is going to improve because we are moving into the correct historical mix of tools for medicine: biotech, nanotech, computation and genomics. Meanwhile, the economic rents from extended patents (to big pharma, etc. -- and the future reduced productivity from extended patents -- is going to be less defensible because discovery becomes an automatic procedure.

Bgmma50: "What do you think the response to Stimulus would have been had the Obama administration told everyone that unemployment would be at 9.6%..."

There would have been a big discussion, and at some point even you and I would have weighed in. And I'm still waiting for your easy plan ("easy" = workable, realistic, agreed-upon, etc.)

Otherwise, it is what it is: the Democrats are committed to making the welfare state work, by reducing costs in it. The question is whether that always means reducing benefits too, since standard economics indicates that there may be cost savings, by technological progress and institutional design, that would preserve and even enhance benefits. On the other hand the Republican Establishment will do nothing but increase the deficits by tax cuts -- although now they have to wrangle with their teaparty, which wants to take a goofy slash at the safety net, whereupon the rest of us are going to gather them all into a spaceship, and launch them to Mars. Which ain't no kind of place to raise a kid, etc.

Posted by: Lee_A_Arnold | September 16, 2010 9:59 PM | Report abuse

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