The Catholic University of America
Sep 24 2010

The GOP’s Pledge to America—Don’t Bet On It, Please!

Posted by Ernest Zampelli at 8:53 AM
1 comments
- Categories: Economy | Government & Civil Society

The stalwarts of the Republican Party—Mr. Boehner and company—have unveiled their plan to put America back on the right economic track.  Reduce taxes, reduce government spending, repeal health care reform, and reduce the deficit—VOILA!  I’d like to know what kind of Kool-Aid these people, and those who believe them, are drinking.  First and foremost, look at some representative numbers to see what success would entail.  Estimates for 2011 show federal government spending at about $3.8 trillion, federal receipts at $2.5 trillion, and a corresponding deficit of about $1.3 trillion.  Now let’s take the first (and oh so surprising) recommendation of reducing taxes.  Obviously, the logic is this—tax rate reduction leads to supply-side expansion which spurs economic activity which in turn raises revenue.  Unfortunately, the supply-side responses to lower tax rates are probably not large enough to spur enough activity to actually raise revenue.  So, most likely federal receipts would decline.  But for fairness sake let’s say they remain unchanged.  Take the next (equally stunning) recommendation of reducing government spending.  To get rid of the deficit entirely would require a 34% spending reduction.  When one considers that about $750 billion of the $3.8 trillion is defense spending in which there is unlikely to be serious declines, then you’re talking about a 43% reduction in spending to eliminate the deficit.  A 43% drop in federal spending would not only remove fat, but lots of meat and probably some bone as well.  Well, what about repealing or “chipping away at” health care reform?  Yeah, that’ll work…uh, oh, except for the part where the CBO estimated that the health care reform as enacted would contribute almost $150 billion to deficit reduction over the next decade!

Look, it’s time to get serious.  Understand that the deficit will not be substantially reduced without both tax increases and reductions in government spending.  Also understand that health care reform as enacted, though not perfect by any means, is also a necessary step to long term deficit reduction.  And while we’re on the subject, the fiscal stimulus did help save and create jobs.  Freezing stimulus funds that have not yet been spent is foolish, especially in the current environment of anemic growth and job creation.  Indeed, given that by most accounts the initial stimulus was TOO SMALL to engender a more rapid recovery, such a freeze coupled with the other “pledges” to America is downright dangerous to our short and long run economic health.       

Comments

Matt

Matt wrote on 09/24/10 9:16 AM

Very nice summary of the fiscal realities facing the United States today. In an alternative universe, leaders from both parties would get together, agree that deficit reduction will require sacrifices from everyone -- taxes raised *and* spending cut in *all* spheres -- and then do it. The closest we came to that was the 1990 budget summit. But then, neither party perceived any electoral benefits from that effort, so here we are.

In any event, since we are still in the aftermath of a recession, any talk of defecit reduction seems quite premature, as you point out.

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