Tuesday, January 19, 2010

Reality check on the deficit

Republicans and self-styled deficit-hawks have been screaming to anyone who will listen about the "reckless spending" by the Obama administration. The Center on Budget and Policy Priorities released a study on long-term deficit reduction, and this stood out:

Federal spending for programs other than the “big three” is not responsible for the long-term imbalance. Total spending for all federal programs other than Medicare, Medicaid, and Social Security — which includes federal entitlement programs other than these “big three” — is projected to shrink as a share of the economy in coming decades. These programs will consume a smaller share of the nation’s resources in 2050 than they do today. As a result, they are not part of the cause of the long-term fiscal problem. Statements that we face a general “entitlement crisis” thus are mistaken.

(Emphasis in original.) All these Republicans that are screaming about the deficit but are completely unwilling to do anything with entitlements or raise taxes don't have a leg to stand on. The GOP actually talks about an even smaller slice of spending than CBPP talks about here, since they won't touch defense spending.

To be fair to the GOP, they did try to privatize Social Security. Put aside the thought of what would have happened to retiree's savings in this downturn if they had been relying on, essentially, government sponsored 401(k)s. Take a look at this chart. Clearly, Medicare is a MUCH bigger problem than Social Security. The Obama administration is working to make that number go down. Yes, that health care bill is actually GOOD for the deficit. You can't be for deficit reduction and against health care reform. Tort reform will not solve the problem alone. It would be a blip. They will also have to most likely peg the retirement age to life expectancy, which will help with both problems, unpopular though it may be.

Taxes will also be a big issue:

Tax policy decisions that Congress will make in the near future will have important implications for the size of the long-term fiscal problem. Allowing all of the 2001 and 2003 tax cuts to expire as scheduled — or fully offsetting the costs of those tax cuts that are made permanent — would increase revenues by nearly 2 percent of GDP each year. That action would reduce the fiscal gap through 2050 by almost two-fifths — from 4.9 percent of GDP to 3.0 percent.

Look at that. The Bush tax cuts had a HUGE effect on the deficit. Merely letting them expire will help a lot. Not enough, but a lot.

Then there's this. I've linked it before, but blaming Obama for this deficit is just plain dishonest:

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