President Barack Obama’s deputies say he wants to tackle the budget deficit by raising taxes on wealthy people and oil companies, but there’s not much evidence that increased taxation can significantly reduce the annual flood of red-ink, now amounting to roughly $1,500 billion, or 40 percent of federal spending. (more)
The lame-duck Congress has been marked by many competing issues, but none as prominent as whether to renew the 2001 and 2003 taxpayer relief laws. Lawmakers, wary of another difficult election two years from now, have wisely made the tax rate extension a top priority. Runaway deficit spending clearly galvanized voters and adding a tax hike on January 1st, with unemployment still at 10 percent, would send another wave of enmity toward Washington. (more)
Discussions about deficits and debt reduction inevitably center on whether and how to reduce government spending or increase tax rates. Proponents of increasing taxes argue over what level tax rates should be increased to and for which segments of the population. Proponents of decreased spending debate which federal programs should be trimmed or eliminated altogether. But this choice is a classic false dichotomy. If we grow the economy enough, we won’t have to rely on massive tax hikes or spending cuts. (more)
For all the talk of the tax cut deal’s impact on the deficit, if Republicans can get spending cuts to pay for the $60 billion or so that it would cost to extend unemployment insurance for a year then the agreement will be acceptable to a majority of even the most conservative among them. (more)
Please take a moment and let this sink in — it doesn’t matter whether or not Bush’s tax cuts expire. Either way, taxpayers will be on the hook for the trillions in obligations that Washington has incurred and continues to add to at an alarming and ever-accelerating rate. (more)
With over $13 trillion in national debt and the recent projection that it will top 100% of GDP in 2012, we are entering uncharted fiscal waters which threaten our economy. Kenneth Rogoff of Harvard University has found that economic growth is 2.6 percentage points higher for countries with debt below 30 percent of GDP than for countries with debt above 90 percent of GDP. If Washington continues to do nothing, America is headed for a Greece-like debt catastrophe. (more)
Last week, President Obama celebrated the one-year anniversary of the signing of the stimulus bill with a ceremony in the Executive Office Building. He acknowledged that implementation of the stimulus had not been “perfect” but took particular pride in the efficiency of the stimulus spending given “the scope, the magnitude of this thing.” But its scope and magnitude is precisely what led more responsible analysts to counsel against its enactment. Former Council of Economic Advisers Chair Ed Lazear dubbed it the “Brewster’s Millions” problem: even if one accepts that deficit spending can provide a boost to the economy, the very real administrative challenges associated with getting that money out the door in a timely manner make a spending stimulus an unattractive option. After one year, the stimulus has failed to stem the tide of rising unemployment, but has succeeded in dramatically complicating the near-to-medium term fiscal situation. (more)
President Obama has been talking tough on deficit reduction, but many left-leaning pundits and economists warn that such rhetoric will prolong the economic slump. MSNBC host Rachel Maddow warned that Obama’s proposed partial spending freeze was Herbert Hoover’s strategy, while Budget Director Peter Orszag cautioned that FDR’s attempt in 1937 to rein in the deficit prolonged the Great Depression. These warnings may also help prolong the economic slump because they are based on faulty history. (more)
When policies fail to reach their stated goal, just move the goal posts. That is the obvious lesson of the new report from the White House’s Council of Economic Advisors (CEA) claiming that last year’s stimulus bill created or saved somewhere between 1.5 and 2 million jobs. (more)
