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Unsurprisingly, deficit hawks, real and phony, have greeted the new CBO report acknowledging that the FY 2012 budget deficit will exceed a trillon dollars with the usual shouts of doom. That is particularly true of Republican pols, who argue that it’s a sign for a radically different economic and budget strategy—beginning, of course, with steps to make the single biggest controllable factor contributing to recent increases in the deficit, the Bush tax cuts, permanent.
Ezra Klein points out, as he often does, that CBO also estimates that if Congress does nothing but extend current policies, the deficit will rapidly decline after 2012. But that would require two things that just ain’t happening—refusal to “patch” the Alternative Minimum Tax, thus exposing millions of upper-middle-class taxpayers to higher rates, and refusal to “temporarily” adjust Medicare reimbursement rates for providers, another annual ritual needed to keep our rickety health care system functioning. It would also require allowing the Bush tax cuts to lapse as currently planned, but that, of course, is intolerable to Republicans, who want more, not fewer, high-end tax cuts.
Ezra argues—again, hardly for the first time—that the intelligent way to deal with the deficit problem is to come up with a credible long-term strategy that protects short-term economic recovery and does not rely on short-term “fixes”—i.e., more tax cuts—that likely won’t help the economy but will vastly boost the deficit and/or force spending cuts that will immensely damage the economy, not to mention our society.
We are nowhere near having that kind of strategy unless the current elections produce at least a minor breakthrough. For now, despite all the periodic deficit hysteria, markets don’t seem that worried about it, and certaintly aren’t demanding the kind of austerity policies the GOP is both implicitly and explicitly supporting. So feel free to ignore the latest panic from the green-eyeshade set, particularly those whose agenda really has nothing to do with the budget or the economy, and everything to do with making the tax code more regressive and getting rid of the social safety net.
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CJ on January 31, 2012 5:26 PM:
...feel free to ignore the latest panic from the green-eyeshade set, particularly those whose agenda really has nothing to do with the budget or the economy, and everything to do with making the tax code more regressive and getting rid of the social safety net.
Their agenda is to enrich the rich. Period.
square1 on January 31, 2012 5:29 PM:
Ezra is correct that we should have a comprehensive deficit-reduction and stimulus plan in place. However, the point that Ezra makes in arguing for such a plan (i.e. that the market requires "certainty" over how the U.S. plans to reduce the deficit) makes no sense.
There is a very simple and very transparent way of measuring the market's concern about deficits: Treasury yields. If the market is concerned about deficits, interest rates go up. If the market is relatively unconcerned, interest rates decline.
Guess what? Interest rates remain historically low. Nobody gives a damn about the deficit. Yes, if the economy starts to grow and people stop looking for safe harbors for their assets then you might start to see interest rates rise faster than they otherwise would. But right now, the market is just not indicating that there is a problem.
Only a rank idiot wouldn't seize the opportunity to borrow money virtually for free in order to stimulate the economy. Sadly, rank idiocy appears to be a bipartisan affliction.
T2 on January 31, 2012 5:30 PM:
let the Bush Tax Cuts expire. If Obama is president..what harm can it do politically to him..he'll be in his second term and the Left will love it PLUS it will drastically improve the Deficit. Sure the GOPers will scream bloody murder....but they'll do that regardless.
IF Romney is president, they won't be allowed to expire.....but since a GOPer would be president, the Deficit wouldn't matter anymore, anyway. IF Gingrich is president...well, we'll have other fish to fry.
schtick on January 31, 2012 7:03 PM:
It's getting really bad when my friends that are well off (doctors and lawyers and a couple business owners) are saying they can't believe the greed of the GOP.
I've tried to tell them, it's always been there, they just weren't paying attention. I think the biggest shock for them was the insider trading.
Amazing they finally notice when it's affecting them in their business because people can't afford their services. doh!
kevo on January 31, 2012 7:50 PM:
Quite a few political wars are fought and won on the battlefield of rhetoric, propaganda and perception, so, when your friends of the Red Stripes suggest we're witnessing Class Warfare being pushed upon us by OWS, the 99%, and President Obama's proposed tax policies, simply reply,
There is no such thing as Class Warfare in my heart and mind. I harbor Class FairShare! We, the 99% want Class FairShare, and are tired of the current Class Warfare the Red Stripe people have been laying upon us for the past 30 years or so! -Kevo
ClearEye on January 31, 2012 9:53 PM:
CBO says the deficit drops to 1.5% of GDP in a few years, about half the average of the past 40 years under the baseline, but that economic growth would be stymied and unemployment will stay very high. Then, of course, really disastrous healthcare costs start to click in late in the decade unless we do something serious to bend the cost curve. http://cboblog.cbo.gov/?p=3200
The interesting thing is that the deficit reduction (higher revenues and lower spending) are baked into current law. The Congress must change the law and the President sign whatever is adopted--or not.
Negotiating leverage has changed markedly, as Congressional Republicans want both continued defense spending (above the level mandated by the Budget Control Act) and tax cuts (Bush tax cuts extended only through end of 2012. Obama can play for his priorities and be assured of considerable success. Or just let it all go forward into 2013 and let the winner of the 2012 election figure it out.
Who stands up to support an increase in the deficit? What mix of revenues and spending? Bipartisan compromise anyone?
Should be interesting.