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Friday, December 3, 2010

Deficit-Reduction Theater: We're in deep voodoo here.

by John MacBeath Watkins

Today, the deficit-reduction commission appointed by President Obama ended its work without even voting on its proposal.  Erskine Bowles and former-Sen. Alan Simpson, co-chairs of the commission, realized they didn't have the votes for the proposal they released Nov. 10 to be adopted by the full panel, so they didn't hold a vote.

Of course, the reason they can't get that support is that it was a lousy plan, replete with what Henry Aaron of the Brookings Institution calls "magic asterisks" -- promised cuts like those in the 1980 Regan budget, cuts that never materialized.  Its proposed changes in tax policy were disruptive and cuts were severe.

There's a fairly simple way to reduce the deficit.  You increase revenues and cut spending.  We currently spend more than six times as much on our military than the second-place country, China.  American military expenditures amounted to 43% of the world total in 2009.  That kind of muscle makes our leaders far too quick to spend the lives of our service men and women and the wealth of our treasury. So how about if, once we wind down the ill-advised adventures we're now engaged in, we only spend five times as much as the next biggest military spender?  In 2001, our lawmakers voted for tax breaks they said would stimulate the economy and would expire in 2011.  The economy is in a shambles and 2011 is a month away, so why not hold them to the expiration date they voted for?

Those two changes would take care of most of the problem.  Cutting the rate of increase in the cost of medical care could take care of the rest, and the Affordable Care Act takes a stab at that, so guess what?  The new majority in the House wants to repeal it, and has no proposal for a replacement for it.

Meanwhile, Democrats and Republicans are negotiating a deal whereby unemployment benefits will be extended in exchange for the extension of tax cuts for income above $250,000 a year.  In other words, we (Republicans) will let you spend more if you (Democrats) will let us cut revenues.  I can see the Democrats' point of view -- we're in the worst economic state we've been in since the Great Depression, and temporary measures will alleviate much suffering.  I honestly can't see any justification for the Republican point of view.  They say the temporary extension of the unemployment benefits busts the budget, but they think the much longer extension of the tax breaks for the wealthy, which are far more expensive and build a structural deficit into our government's accounts, are not a problem.  If they believe that, they're in deep voodoo (economics.)

Now, I have my doubts about the priorities of politicians who think addressing the deficit is the most pressing matter at a time when voters are more worried about the economy, and I don't buy the argument that cutting the deficit will stimulate the economy.  But we've sure seen a lot of grandstanding about the deficit, and the priorities revealed by the current negotiations on taxes and unemployment benefits show that this has been nothing but grandstanding.

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