Re: "and in the long run much lower tax rates."
I'm all for that too... the problem though is HOW?
SPECIFICALLY: WHAT TO CUT?
I listened to Orzag, the just-departed GAO budget director and former CBO director (for an hour on Charlie Rose last night).
He is most concerned about the mid-term (2014, 2015, 2016) which is when he fears that the US might face a DEBT CRISIS (a la Greece) if we haven't taken heroic actions on the budget by then (big, big, huge cuts... *and* tax hikes according to him)....
He took pains to point out the MARGIN OF ERROR that applies to the GAO and CBO estimates.
Basically GAO/CBO are projecting (baseline from where we are right now...) a deficit 'low' of 5% of GNP in FY 2015....
But, (as he took pains to point out), that is with a confidence interval of 90% on those projections (which means that the federal deficit in 2015 could *actually* be anywhere between 10% of GNP and 0% of GNP in that year and still be within the margin of error for those GAO & CBO projections).
THAT'S what's got him worried.
At 10% of GNP we would be in Greece territory, while at 0% of GNP deficit we would be in very good shape, and actually on the verge of net paying *down* accumulated federal debt as we were in the last two years of Clinton's second term....
(This wide range of possibilities, PLUS the history of the Clinton years, are the two main reasons why I am SUCH A HUGE FAN of us trying for STRONGER GROWTH in the economy... it is the main way we have ever been able to reduce deficits in the past: GROWING at a faster rate makes it all so much easier!)
'Cutting' alone WON'T DO it. (Greece cut and their deficit is soaring because of it, Ireland cut and the exact same thing happened....)
At the 'conventional wisdom' mainstream economists' projected federal deficit of "5% of GNP" in 2015, (as Orzag pointed out), Social Security and Medicare are 50% of the federal budgets.
There is no political way in Hell that payouts for current retirees, or those very close to retirement... say 10 years away from it or less... 56, 57 years of age or older, will be cut. (Ain't gonna happen. Sooner a chance that we will change our name to "Lady GaGa Land" and all start wearing meat suits....)
So, even if we enact drastic reductions in FUTURE RETIREES' BENEFITS for those two programs, and scale them into effect... nothing consequential could have any budget impact until 2022 or later, at least. Nothing much to see here, move on. The debt crisis would have ALREADY struck us if it was going to.
Discretionary spending - Defense Department:
a) Cost of wars --- already in-trained. Ending them as fast as politically possible. By 2015 not a factor. (And that's already factored into the budget projections.)
b) about 1/3 of defense spending goes to R&D and weapons... Gates is already hard into giving that the 'gimlet eye'. Doubt Congress will ALLOW any reductions beyond what Gates is proposing. (Maybe they won't even allow that....)
c) balance of defense spending - force structure. (No huge savings to be found there unless we choose to go the 'Ron Paul way' and end our foreign military basing. Chances of that? Only slightly better then those for Lady GaGa Land.
ALL NON-DEFENSE DISCRETIONARY SPENDING:
According to Orzag, if we ended 100% of that (Departments of Agriculture, Education, EPA, FDA, Commerce, Corps of Engineers, etc., etc., etc.) it would only amount to a gain to the GNP/debt level in 2015 of 0.15%.
Nice enough perhaps, (particularly to pastoralists and Walden Pond fans) but it doesn't really move the needle on the debt-as-a-percent-of-GNP needle much.
Now... deficit-to-GNP is projected to *fall* each and every year between now and 2014/2015 anyway, (but that's just as a result of the ending of the Great Recession). Beyond that mid-decade point structural deficits will emerge worse then ever because of demographics and other factors.
BUT --- (unless we get lucky on the "0%-to-10% range" on the debt as a percent of GNP metric, and instead of hitting "5%" in 2015 as expected it all goes away and we hit zero) --- there is no REALISTIC WAY to reduce the huge structural federal deficits from 2015 out to the horizon *unless* all of these three conditions come to bear:
1) HIGHER ECONOMIC GROWTH then 1.5%.
2) Big, big spending reductions.
3) Big, big revenue increases.
The elimination of the deficit *ain't gonna happen* in OUR LIFETIMES without contributions from all three.
Anyone trying to tell you otherwise is just selling snake oil. |
