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NY Times: OK, You Fix the Budget

November 14th, 2010 . by economistmom

nytimes-deficit-graphic-111310

(Graphic from the New York Times by Felix Sockwell)

In this morning’s New York Times, this fun(?) deficit-reduction exercise constructed by David Leonhardt with the help of many of my budget-world friends (see credits/sources here).  The goal?  Reduce the 2030 deficit by $1.345 trillion–or $1,345 billion.  (If we were to succeed, we would not eliminate the deficit, but we’d at least get it down to an economically sustainable level of 3 percent of GDP.)  So David gives us an empty grid with 1,345 squares, each representing, oh, a mere billion dollars, and a bunch of fiscal policy options on both the spending side and revenue side of the federal budget for you to come up with your own favorite (or rather, least detested) ways to fill up the grid.

Why the year 2030–rather than the President’s fiscal commission’s “medium-term” goal of getting the deficit down to 3 percent of GDP by 2015?  And why so many painful choices regarding major tax and spending programs in the budget?  As David’s article explains:

The deficit puzzle focuses on the year 2030 because it is far enough away that the boomers’ retirement will weigh heavily on the budget but near enough that reasonable budget estimates exist. By 2030, the needed deficit cut will equal about 5.5 percent of annual economic output…

So the solution will have to revolve around tax increases and changes to health care and Social Security. And the country cannot wait until 2030 to implement most of the changes, notes Alan Auerbach, an economics professor at the University of California at Berkeley. If it did, the interest on the national debt could become crushingly large. Deficit cutting will probably be a regular part of politics for the next couple of decades.

One obvious debate will be taxes versus spending. But relying exclusively on one would be extremely difficult. An approach based only on spending would mean deep cuts to programs that many Americans consider to be the essence of government: Medicare, Social Security and the military, among others. Closing the entire deficit through taxes would require enormous tax increases, mostly because Medicare spending is expected to continue growing much faster than income. To keep up, tax rates would have to keep rising.

The real issues, then, are how much taxes should rise, how much spending should be cut — and what kinds of each change should take place.

And why are all these public education and outreach efforts (what critics label “propaganda”) needed now more than ever–even as Americans have just elected a new crop of politicians who claim they’re determined to reduce the deficit?  As David and my friend Bill Gale put it:

That’s the problem with deficit cutting: it involves painful choices, like the ones you see here and the ones in the Bowles-Simpson plan that led to last week’s outcries.

The government has not yet solved the deficit problem, the economist William Gale of the Brookings Institution says, because voters have not yet demanded it. They have rewarded politicians who say they are worried about the budget much more than politicians willing to make specific benefit cuts and tax increases. All of us would prefer generous benefits and low taxes.

“Whatever the eventual solution is,” Mr. Gale said, “it will probably be something that is not politically feasible now.”

So take David’s puzzle for a spin (maybe after you do the crossword puzzle), and let me know what you come up with!

And thank you, David Leonhardt, for putting this together in something that gets so many eyeballs (the New York Times, both in print and online).  You’ve done the cause of fiscal responsibility a tremendous service!  :)

17 Responses to “NY Times: OK, You Fix the Budget”

  1. comment number 1 by: SteveinCH

    Funny,

    I solved the ST and LT on cuts alone. It wasn’t even that hard.

    Of course then I added some taxes to create surpluses just for fun.

  2. comment number 2 by: Vivian Darkbloom

    I guess it is a good initiative, but in my view the “options” should be better explained and there is no good reason not to have done so.

    For example, one option on the tax revenue side is described as follows:

    “Eliminate loopholes, but keep taxes slightly higher. This option is the same as the previous one – except that tax rates would be cut less, raising more revenue to reduce the deficit”.

    I understand the need to keep it simple in the main text, but I don’t think it is too much to ask that the NYT reveal at the very least what the tqx rates under this alternative would be in a link to more detailed about the option which one could choose to access if interested in the details. Obviously, the information exists or they would not have been able to put the program together. The same criticism goes for the rest of the menu items on the program. It’s always nice to know what one is voting for and to be able to check the accuracy and realism of the significant assertions they make. For example, estimates on the savings to be acheived by medical tort reform (specifically, what kind of reform?) have been all over the board and differ by a factor of at least several hundred percent.

  3. comment number 3 by: Vivian Darkbloom

    Sorry for the garbled third paragraph which should read “…what the tax rates under this alternative would be in a link that those interested in more details could access”.

  4. comment number 4 by: Brooks

    Today was first chance I had to respond to comments over on another thread, so I’m putting link here in case those involved in that conversation wish to see http://economistmom.com/2010/11/a-bipartisan-and-reality-based-way-to-cut-tax-rates-and-reduce-the-deficit-really/#comment-16438

  5. comment number 5 by: Jim Glass

    Why to close the budget deficit by 2030:

    Niall Ferguson’s Complete And Definitive Guide To The Coming Sovereign Debt Crisis.

    http://www.businessinsider.com/niall-ferguson-sovereign-debt-crisis-2010-11#-1

  6. comment number 6 by: Jim Glass

    Dilbert says: Let Judge Judy run budget reform.

  7. comment number 7 by: Vivian Darkbloom

    I’m posting here a comment made on the NYT Economix blog because I think that one does need to take a bit more criticial view of their useful but potentially very misleading initiative.

    This is a very good initiative, and a useful exercise, but I’ve got a few complaints.

    First, having read the accompanying Economic Scene article that introduces the model, as well as the “Room for Debate” article, I was under the impression that the simulation model was designed to eliminate the annual deficit by 2015 or 2030, respectively. It is only here in the Economix article (that a small percentage of users read) that it is revealed that the model seeks merely to reduce the annual deficit to 3 percent of GDP in those respective years—not to balance the budget in those years (and balancing the budget does not eliminate the existing debt). Even many of the comments to this Economix article seem to indicate readers are under the mistaken belief that they have “fixed” the budget by balancing it in future years. Amazingly, Donald Marron, one of the contributors to the “Room for Debate” series accompanying this suffered from that same misconception as evidenced by his web site entry here: http://dmarron.com/ If a sophisticated NYT contributor like Marron got it wrong, what does this imply about the ordinary reader? Setting the bar so low and not sufficiently informing readers that the bar has been set low, is misleading in a way that detracts substantially and perhaps outweighs, the positive aspects of this exercise. By setting this as a goal, the NYT has made a very significant policy decision that it has essentially made for its readers. I suggest that you highlight this fact prominently in the model itself rather than only here on the Economix blog.

    Second, and related to the first, is the issue of whether the 3 percent of GDP figure includes the interest needed to service the existing and future debt. This is an important fact, easy to disclose to readers, but the answer is not to be found in any of the articles related to this model. Experts call this the difference between the “total deficit” and the “primary deficit”. As noted in the Bowles-Simpson outline “We must stabilize then reduce the national debt, or we could spend $1 trillion a year in interest alone by 2020”. This should give readers some indication of the significance of the difference between those two concepts. Essentially, what Mr. Leonhardt seems to have done, without adequately informing readers, is to take the administration’s own goal of reducing the PRIMARY deficit to 3 percent of GDP, made this the goal of the NYT readers and then suggest that by meeting this goal the budget has been “fixed”. So, Mr. Leonhardt, what’s the story here?

    Third, I understand that there are limitations on the amount of detail that can be given with respect to these budget menu options. Nevertheless, it is important that readers, if they desire, have access to some of the more significant assumptions that went into each of the assertions implicit in this simulation. This could easily be done by providing a hyper link from each menu option to a footnote that discloses key assumptions made. Readers have a right to be informed about key details of each option they are “voting” for and to challenge the significant assumptions made if those assumptions are erroneous with respect to this very significant policy issue.

  8. comment number 8 by: SteveinCH

    Thanks for this Vivian.

    I thought the exercise was just a bit too easy.

  9. comment number 9 by: Jim Glass

    Why there’s been no progress on the deficit and there won’t be anytime soon:

    Q #9: Of all the problems facing this country today, which one do you most want the new Congress to concentrate on first?
    ….
    Budget Deficit/National Debt 4%
    ….

    CBS News poll.

    The average voter has to realize there is a problem before there is any hope of serious discussion of solutions.

  10. comment number 10 by: John B

    It was easy. I enjoyed goring sacred cows, whales, and minnows. You’ve got to go after the big targets: defense, social security, health care. It doesn’t have to be draconian if you spread it around.

  11. comment number 11 by: ST Dog

    Gotta love how everyone jumps to cut the one constitutionally authorized expense (defense) instead of the unconstitutional welfare programs.

    Not saying there isn’t waste in defense, but we have lots of old, worn out/obsolete equipment that needs to be replaced (especially aircraft).

  12. comment number 12 by: Gipper

    Jim,

    At the risk of sounding blasphemous, the deficit isn’t the problem. To pay for government spending, you can borrow or use tax revenue.

    However, the deficit today represents a warning about what we can spend in the future. The problem is that interest payments will eat up a larger share of the budget. Until interest payments make a huge impact and crowd out other spending, the deficit means nothing to the average voter.

    This is the Republican strategy. The Republicans realize that they will only lose votes to make significant entitlement spending cuts. So they will starve the beast eventually. However, they are making a big gamble that Americans will hold the line at tax rates and then accept spending cuts only when interest payments force the issue.

    This is why I’ve argued that Democrats must come forward with significant spending cuts in entitlement programs before Republicans will feel comfortable abandoning their starve the beast strategy. Tax rate increases will be paid C.O.D.

    If Democrats really care about the deficit, then they will take this step. However, I suspect that most Democrat deficit hawks only use the deficit as a cudgel to wound Republicans.

    Suppose the following deal were on the table: Democrats agree to a complete repeal of Obamacare, elimination of Agriculture subsidies, abolition of the Dept. of Education and Medicaid. In return Republicans agree to sign onto the Erskine-Bowles tax reform that eliminates all deductions, lowers rates, and raises tax revenue to 21% of GDP.

    I doubt that you could even get Economistmom to sign on to that deal, let alone a majority of Democrats.

    Which only proves that the deficit isn’t the most important thing. It’s the spending. Taxes and deficits are just the means of enabling spending.

  13. comment number 13 by: AMTbuff

    I wish elimination of Obamacare and Medicare had been listed as options. I believe they are doomed post-crash anyway.

  14. comment number 14 by: Arne

    I finally got around to using the web tool.

    In one version I “solved” the deficit without reducing health care expenses at all. That is silly.

    I am with the majority of people polled who would raise SS tax rates before reducing benefits, but that option (or even a combination) was not even available.

  15. comment number 15 by: Jim Glass

    This is why I’ve argued that Democrats must come forward with significant spending cuts in entitlement programs before Republicans…

    If Democrats really care about the deficit, then they will take this step…

    Don’t hold your breath. Orszag recently wrote (did I mention this here already?) that he was surprised that during the last two years the Democrats had *no interest whatsoever* in flxing SS … even though they had the most power they’ll ever have, and had the best chance they’ll ever have to do it totally on the terms *they* wanted. Now that chance is gone forever.

    They just weren’t interested in fixing SS even on the best possible terms for them. Well, it’s obvious why, if it needs fixing then it’s broken, and if SS is broken then maybe Medicare is broken, etc. That hurts before the 2010 election, who on the left is going to stand for that? Especially since the fiscal crisis is still a good 15 years away, at least, we hope.

    They’d rather fix SS on much *worse* terms for their constituents (by their standards) in the future than trouble their base today. That’s the relation of politics to substance.

    They say there is no bipartisanship in DC, but there is plenty of it when it suits both parties’ agenda. The reason only 4% of people think the debt/deficit is a top problem is because both parties have been actively educating them forever that it *isn’t*. Otherwise, how could the Repubs keep pushing tax cuts and the Dems keep denying any sustainability problems for entitlements while creating new ones?

    It’s the same disheartening conclusion. The fiscal fix will come only when the crisis hits. Or, if we’re lucky, when some other country a lot bigger than Greece goes off the cliff before us and we finally grasp a lesson from its example.

  16. comment number 16 by: Gipper

    Jim,

    Agreed. The anti-debt ardor favors the Democrats. Democrats, Economistmom, and Bruce Bartlett, et. al. say that it was Bush’s fault that the deficit has grown. OK, that makes sense if you take all current spending on entitlements and everything else as fixed and immutable.

    However, if you’re a Republican who wants limited government, you enact tax cuts because you believe that Democrats won’t use the surplus to reduce deficit spending and pay down the debt. Instead, Democrats would use a surplus to expand government even further. Hell, Democrats would even use the largest deficit in US history to expand the government further.

    So why should Republicans be the handmaidens to help pay for the Democrats’ welfare state? They’re not. The growth of interest on the debt is a threat to the Democrats’, not the Republicans.

    Sure the Republicans are cynical in not wanting to actually run on a plan like Paul Ryan’s Roadmap. They’ve learned that they lose elections arguing for fiscal responsibility while the other side demogouges them into defeat.

    So the Democrats are going to have to take the lead on reducing the deficit by cutting spending — significantly. Significantly enough that Republicans would have to accept a deal to increase tax revenues in exchange.

    But like Jim, I don’t see that happening until interest on the debt grows to 10 or 15% of the budget.

  17. comment number 17 by: Neil Fitch

    I fixed the budget! Why was this so easy? I made an effort to mix tax increases (this is a relative term - relative to the changes in taxes over the past 70 or so years) and spending cuts, with options remaining on both sides. Any congressman, woman or senator would likely loose the next election if they did the same. Wake up America, you can’t keep it up. Show some discipline and tighten the belt.