What about the budget?

Megan McArdle (what do you call her when Jane links to Megan?  And can they have an infinite regress?) and Brad DeLong seem to agree that the Bush tax cuts should not be made permanent.  My take is the following: Taxes already were raised when the government spending occurred.  In that sense the "tax cuts" never were permanent.  But when do we wish to admit this?  We could raise (nominal) tax rates sooner rather than later, and hope that the subsequent "financial calming" effect will improve the chances for better policy in the future.  Alternatively, we could play "chicken" with the marginal tax rates, and hope that holding them lower, for longer, will increase the chance of the appropriate entitlement reforms.  I don’t have any strong views as to which is the best way to proceed, at least assuming we cannot raise the gas tax instead.

But I do suspect that Megan favors a lower rate of government spending than does Brad.  So does this mean she sees the first scenario, and he sees the second, and that they agree on the big question only because they disagree on the little one?


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