(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!