On deficit reduction proposals

If you read this blog often, you'll know how concerned I am about ballooning government deficits and debt. I'm honestly not even going to bother linking you to all of my previous posts on the topic--they're easy to find. So my silence on the topic of last week's Simpson-Bowles deficit commission report probably strikes you as a bit suspicious.

It's not an oversight on my part. I wanted to give the report fair treatment and to wait until I had fully read through the 50-page report before commenting. But before I could do so, along came Pete Domenici and Alice Rivlin with a competing deficit reduction proposal of their own (worth a read), to add to the chorus. It already seems fairly clear that there will be more of these proposals than can reasonably be studied and commented on. I think this speaks partially to how serious the issue has become--and our recognition of that fact (which is good)--but also to how difficult and complicated it will be to solve.

One of the more illustrative items I've come across in the wake of the Simpson-Bowles report (and there have been many--here are a few of my favorites) was this interactive graphic from the New York Times, which is simultaneously fun and exasperating to play around with.

 

Like a similar tool which I used during my days as an undergrad economics major, it skews a bit toward the "raise taxes" side as opposed to the "cut spending" side (which is somewhat unsurprising from the New York Times). But that's partially a political reality.

Massive spending cuts are political suicide, since they give the impression that the government is playing favorites (or scapegoating). Tax increases, while unpopular, at least seem more fair--and tax increases on the rich are especially popular politically. Whether they're economically efficient or represent good government policy is another issue altogether.

I think that what tools like this really show is how careful we must be when initiating new government spending programs. They are difficult if not impossible (politically, at least) to scale back once they are in place, but it's equally difficult to raise taxes on the back end to support them. None of the choices in the Times' graphic is particularly palatable, and this is even before we start taking into account the potentially devastating budgetary impacts of an increased interest rate on our government bonds (which are especially acute when we start looking out to 2030 and beyond).

It's easy for politicians and voters alike to ask for and demand that government solve our problems, but we have to understand that it will eventually come out of our pocket--one way or another. As the Times graphic shows, even taxing the rich into poverty can't close our budget deficits. Eventually we all have to take a little pain. It will be interesting to see whose plan (if anyone's) wins out in the long run.

[New York Times]