Wednesday, November 3, 2010

Deficit Hawks Flew the Coop

Here is a bit from an article by Daniel Gross that points out that the chances of Congress getting tough of deficits actually went down with the 2010 mid-term election and not up. Here is one bit that I find interesting:
In the past 20 years, there have been two deficit-reduction deals. But Congressional Republicans weren't a significant party to either one of them. In 1990, Republican president George H.W. Bush and the Democratic Congress agreed to higher taxes and spending cuts -- a deal that was largely denounced by the then-minority Republicans in Congress. In 1993, Democratic Congress and President Clinton passed another package of spending cuts and tax increases over the united opposition of then-minority Congressional Republicans.
Yep... with Republicans now in charge of the House, the chances of a deficit reduction deal has now flown the coop!

Here's the logic that in now entrenched with the Republican victory:
Today's Republican orthodoxy on budget matters can be expressed as follows: Don't touch defense, Social Security or Medicare. Revenue lost via tax cuts doesn't need to be offset with spending cuts. Tax cuts pay for themselves.
And he's the joker in the deck... the one thing both parties can agree on is that something must be done to prevent the Bush tax cuts expiring. The difference comes down to how big a deficit you want:
The tax cuts enacted in 2001 and 2003 are slated to expire in less than two months. Given the economy's unsatisfactory growth rate, there's not much appetite -- on either side -- for letting them expire. Republicans, and many Democrats, want to extend all the tax cuts, without offsetting reductions. President Obama and most Democrats want to extend them for all but families earning $250,000 (and individuals earning $200,000), without offsetting reductions. The negotiation positions, then, are a choice between adding about $3.2 trillion to the national debt over 10 years or adding $4 trillion. Splitting the difference would mean about $3.6 trillion in new debt over the next decade.
Sadly, the medicine the US needs in the short term is more government spending to stimulate the economy, then it can focus on getting budgets under control. To do "austerity" now is a recipe for decades of slow growth, quasi-recession levels of unemployment. But nobody in power understands this fundamental truth. Instead, they are all in love with the idea that "tax cuts pay for themselves!". Yep... and if you believe that, you can simply cut taxes to 0% and the coffers of government will overflow as the cuts "pay for themselves!!!"

Who knew that politicians of right, left, and centre in the US believe in The Tooth Fairy?

No comments: