The challenge

David Leonhardt spells it out clearly:

As a rough estimate, the government will need to find spending cuts and tax increases equal to 7 to 10 percent of G.D.P. The longer we wait, the bigger the cuts will need to be (because of the accumulating interest costs).

Seven percent of G.D.P. is about $1 trillion today. In concrete terms, Medicare’s entire budget is about $450 billion. The combined budgets of the Education, Energy, Homeland Security, Justice, Labor, State, Transportation and Veterans Affairs Departments are less than $600 billion.

This is why fixing the budget through spending cuts alone, as Congressional Republicans say they favor, would be so hard.

Here is related commentary.

Comments

I'm hoping that we increase spending. Leonhardt and Cowen are operating under the false assumption that all want to save this system. I'd rather see the keynsian/socialist/interventionist/collectivist/plundering/warmongering/neocon/communitarians see this project through to the end.

They won't learn their lessons until nature teaches it to them with the cruelest of methods.

The fed will fix things right?

We created the institution to smooth out any bad spots in our economy. The wealth creation proccess doesn't matter, as long as the government can get aggregate demand going things will be peachy.

..we can endure any cost and fund any war if we have a Fed to help get the economy going again. They can paper over any malinvestments...don't worry. We don't need austerity now...instead we need to really gose up that aggregate demand, prime the pump, deficit spending and debt monetization will cure all that ails you.

"This is why fixing the budget through spending cuts alone would be so hard."

So your saying tax and spend is a good idea....awesome!

Don't worry, cutting Eric Cantor's staff will solve everything.

Federal Spending in 2003 was 2.2 trillion. Federal Revenue in 2010 will be 2.3 trillion. So even if we leave our massively inefficient tax system exactly as it is and reverted back to 2003 spending, we'd have a surplus...but who wants that? only the nuts.

No lets boost spending and increase taxes too. Perhaps a VAT could reduce some of that horrible Value that keeps getting added to stuff. lets also put a Carbon tax in palce to reduce all of that horrible carbon that is infiltrating our cities/suburbs and even our homes!

New taxes will surely make our lives better!

How did we start getting numbers like 7-10% GDP out of nowhere now? It wasn't anything like that before the recession, and the recession is a temporary problem.

It seems to me that the problem is grossly overestimated, but I don't have better numbers.

I just got a 'twitter' link to Matt Yglesias - what? Don't ever do that again.

I thought Medicare was projected to rise as a percentage of GDP, so while zeroing out Medicare may only close shy of half the stated gap in this year's finances, it would close an increasing proportion of the stated gap over subsequent years. Not suggesting doing so, just skeptical of the framing.

Gabe, I'd like to see other people comment as well, rather than 10 of your comments.

Tyler is trying to provide right/libertarian cover for new taxes. That is his job. No point in arguing with him, he will continue to do his job.

I'm always baffled by conservative/libertarian economist types who think that you can keep lowering taxes to zero. Sure taxes are a drag on the economy. But you know what else is a drag on business? Poor infrastructure. Is there zero cost to having to run trains slower because our rail lines are so poor that running faster risks derailment? Is there zero cost to trucks getting caught in gridlock around major cities?
If we can no longer build the infrastructure for our markets then we won't have any markets. Walmart's not going to build a road to every house in the US if the government can no longer get money for road projects. They're just going to move all their stores to China, where the government will build them the infrastructure they need.

Let's be mature adults and raise taxes to what we need and then institute pay-go. Trickle-down is not a perpetual motion machine.

' have some spending we can cut: Iraq and Afghanistan. How much money would completely pulling out save us? While we're at it, we can withdraw all our troops from Germany. I think we'll be okay if we don't have any troops in Germany.'

Cutting 100% of our defense spending would amount to 4% of our GDP. You can't just cut defense. You have to cut /a lot/ of things.

Congratulations Doc Merlin for refuting an argument no one made, that cutting defense spending was all we needed to do. Well done.

"Congratulations Doc Merlin for refuting an argument no one made, that cutting defense spending was all we needed to do. Well done."

You're right. He should have taken you to task for your strangely common failure to grasp the potentially quite large follow-on costs across a number of areas of what you're advocating. That strangely common failure is also uniquely found in those who leap first and only to cutting military spending, despite the fact that everyone else is talking about a broad range of cuts and tax increases. (Yes, you may be for other cuts, but like so many you only talk about defense spending, which is usually quite telling.)

I'm always immediately suspicious when I see someone in the New York Times describing what "Congressional Republicans say they favor." I'm just as suspicious when I see someone on the right describe the arguments and positions of Democrats for the convenience of their own arguments. I'm not sure why this sort of thing never seems to throw up a red flag for Tyler.

It's been my impression, at least from many Congressional Republicans, that their concern is less with some degree of additional 'tax' revenue, and more with ensuring that new taxes don't simply become fodder for new spending or the support of currently unsustainable spending. I've seen many Republicans acknowledge that taxes will eventually have to go up, and I've seen many Republicans acknowledge that defense spending has to be reined in just as does spending in other government sectors.

That doesn't sound unreasonable to me, until someone like Leonhardt portrays it in a politically (or editorially) convenient way. It's a matter of degree.

And I still don't understand why a man who holds a BS in applied mathematics is one of the lead economics writers for the New York Times. One of the long-running mysteries of journalism for me is how rare it is to find a journalist with any formal economics background - other than writing about economics in various newspapers and magazines. I can rarely even find one with so much as a four-year degree.

*Cut NASA.
*Cut defense spending for countries which can afford their own military or defense, eg. Europe, Japan, etc. Limit no bid or sole source contracting.
*Cut Agricultural prices supports and loans.
*Cap support for Fannie and Freedie and spin off.
*Raise water prices in the West to reflect reality and costs.
*Close military bases that are in high real estate markets and redeploy and sell closed based lands.
*Auction off more airwaves and open the bottleneck on high speed transmission and recapture airwaves from TV stations that got "free" waves a few years ago.
*Introduce bidding for drug formularies for medicare or set competitive caps (ie, if effective drug costs x and you want something costing y, you pay the difference).
*Limit interest deduction for housing to one residence, cap interest deduction for a family to $60k a year
*Fund highway construction solely from gasoline taxes and raise them to cover costs.
*Fund FAA and other airport costs from user fees.
*Treat narrow tax cuts for constituents (tax earmarks) the same as earmarks and require oversight and disclosure.

" But you know what else is a drag on business? Poor infrastructure. Is there zero cost to having to run trains slower because our rail lines are so poor that running faster risks derailment?"

Go to costa rica and see exactly how true this statement is.

"You're right. He should have taken you to task for your strangely common failure to grasp the potentially quite large follow-on costs across a number of areas of what you're advocating. That strangely common failure is also uniquely found in those who leap first and only to cutting military spending, despite the fact that everyone else is talking about a broad range of cuts and tax increases. (Yes, you may be for other cuts, but like so many you only talk about defense spending, which is usually quite telling.)"

Are you suggesting that pulling out of Iraq, Afghanistan, and Germany is definitely more costly than staying there? I think arguments could be made both ways, and therefore I see no problem in advocating one side while at the same time also understanding the potential for follow-on costs. You then go on to say that I "only talk about defense spending." Yes, in this one comment on this one blog post I only talked about defense spending. Someone should take you to task for your strangely common failure to understand that all of a person's thoughts and positions cannot be taken from a single post on a random site on the internet.

Also,

"I've seen many Republicans acknowledge that taxes will eventually have to go up, and I've seen many Republicans acknowledge that defense spending has to be reined in just as does spending in other government sectors."

Please. Unless you're talking about Republicans who don't hold elected office, this is a bit hard to believe. I doubt you could find many politicians on either side of the aisle acknowledge that taxes need to go up. But I'll give you the benefit of the doubt for now and just ask for a few quotes from the "many Republicans."

I'd also like to say I'm immediately suspicious of anyone who is immediately suspicious of something that's not in the opinion section just because it's in the NY Times. Get a grip.

tax revenues are plummetting...raising the tax rates and hoping that will improve things is insane.

April's tax deficit of $83 billion was the highest April deficit on record. America is now more bankrupt than ever. Income was $245.3 billion, 8% below the total recorded last April. Spending was $328.0 billion, up 14% year-over-year. A year ago in April the deficit was $20.9 billion. And here is the data: tax receipts down 7.9% YoY, Individual Income Tax down 21.5% YoY, and more importantly, spending: Total spending up 14.2%, National defense up 17%, Medicare up 39.4%, Social Security up 4.2% and General Government up 5.6%. At least interest payments were down 9.5%.

"*Cut NASA"

Right, because making cuts in an 18 billion dollar agency will save us a great deal. Why is it that, when people think of ways to cut the budget, they immediately jump to areas that make up less than 1% of federal outlays? It's like McCain focusing on earmarks, all it does is distract from real issues.

Feeling a little better about my Roth conversion.

How about just reining in tax deductions, especially the big ones such as mortgage interest and state/local income taxes, or at least decrease their caps to sensible levels? That won't win many popularity contests, but people need to realize the real cost of their McMansions and their big state governments.

Also, you can add to the list of savings:

*Charge market rates for grazing land in the West.
*Charge barge and ship owners costs for maintaining waterway
*Deny disaster relief to counties and states which do not insure for repeated disasters or which have building codes that do not prevent risk for property damage
*Discontinue lifetime passes for seniors to national parks at ridiculously low fees; increase fees to national parks (but, provide one free non-transferable pass per person)
*Have a national internet sales tax and remit proceeds to the state of the purchaser to offset medicaid costs and to displace sales tax lost from purchases on the internet.
*For MNCs which evade US taxes using transfer pricing mechanisms, establish minimum corporate tax
*Eliminate non-profit status for commercial activities: stadiums, recreational businesses, hospitals where administrative costs exceed x% of costs.
*Cap travel and entertainment tax deductions (lunch not to exceed $20 deduction; dinner $30); limit deductions for travel for seminars, etc.

One place to start is to repudiate the debt. That would save about $240b/yr in interest payments. Not enough to close the deficit, but not too shabby. Plus, since taxation is immoral, and the debt is simply a promise to repay the lender with future, immorally collected, tax revenue, repudiation is in fact the morally right thing to do.

A side benefit is that after repudiation nobody would ever lend to the government again, thus automatically balancing the budget from here on out and preventing us from getting into this situation ever again.

Some of the comments are hilarious.

"spin off the GSEs" Yeah, that worked out real great the first time: with the stockholders wanting higher returns, the CEOs getting bonuses for driving up stock prices, then when they were gone, and the various audit and investigations crimping their lobbying, the non-agency insurers and packagers took market share, so as soon as their lobbying dollars got rid of Armando Falcon as regulator, they leaped into the subprimes. The result is the GSEs are now back being government agencies doing what Marriner Eccles said they needed to do when he called for buying up mortgages and renegotiating them to affordable 30 year fixed in the 30s. Eccles model worked for three decades, and then another two decades as stockholder firms earning a reasonable ROIC for stockholders.

I note a number of people call for a return to 2003 after the damage was done, instead of a return to tax and budget of 1997, or even tax and budget of 2000. Obviously not serious suggestions.

*Auction off more airwaves and open the bottleneck on high speed transmission and recapture airwaves from TV stations that got "free" waves a few years ago.

Yeah, that's a one time $4-5B in revenue, like that will help. At least the oil companies need to pay $17B a year to the people to earn their $25B in profits from extracting our oil which they then sell back to us. And in the process pollute our beaches...

Federal Spending in 2003 was 2.2 trillion. Federal Revenue in 2010 will be 2.3 trillion. So even if we leave our massively inefficient tax system exactly as it is and reverted back to 2003 spending, we'd have a surplus...but who wants that?

Sure, you could put the budget back into balance if you immediately terminated the war in Iraq, repealed Medicare Part D and bumped every new recipient of Medicare and SS since 2003 from the rolls. But then you would need to continue denying SS and Medicare benefits to new retirees throughout the demographic transition.

Needless to say, these moves are not politically viable.

I always wonder why towns in total melt-down don't try radical de-regulation.

I wonder how much of our financial crisis resulted from there being so few other investment opportunities than houses.

The GSEs should of course be spun off and the key is to spin them off completely without implicit government backstopping. If there is a point of diminishing returns to home 'ownership' (in partnership with banks) I'd say we located it.

Isn't it ridiculous that we have a building glut and Robin Hanson has a broom closet?

That's a pretty loathsome article, and argument, all around.

While it is obvious that the solution is not spending cuts alone, it is equally obvious the the PROBLEM is excessive spending -- alone.

Leonhardt intentionally conflates this, as liberals always do. And you're enabling him.

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