Deficit Reduction Is Problem of Method Not Magnitude


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The Bloomberg editorial board infers that the latest deficit reduction plan from Erskine Bowles and Alan Simpson will make it easier for Congress to reach an agreement.  That is because they are only asking for $2.4 trillion instead of $4 trillion.  However, the problem is not magnitude, but method.

Here is the fundamental problem.  Democrats believe in a balanced approach where there is a combination of tax increases and government spending cuts.  Preferably, they would prefer the majority of the deficit reduction to take place at the expense of the affluent and minimize the cuts to domestic and entitlement spending.  Republicans are leery of raising taxes because they are concerned that it will threaten economic growth.  If taxes rise on the affluent, they might hold on to their cash and not take risks on business ventures that create jobs.

On the other hand, Republicans would prefer to lower deficits mainly through reforming entitlement spending (Social Security, Medicare, and Medicaid).  They are correct that there are disturbing trends in entitlement spending that are unsustainable given our current finances.  However, cutting those areas significantly would place a greater burden on a vulnerable population that can least afford those cuts (seniors and the poor).  That is precisely why Democrats want the rich to share more of the burden in the form of higher taxes.

Since we have not reached consensus as Americans to which approach is preferable, we have a divided Congress.  Until one party is able to craft a message in such a way where they would hold a majority in the House, a sizable majority in the Senate (to prevent a filibuster), and occupy the White House, gridlock will always be a threat.

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5 thoughts on “Deficit Reduction Is Problem of Method Not Magnitude

    • It depends on the circumstances, but I agree in most instances it is not a vice. Having said that, we can say that with the presence of great wealth, that rent-seeking is more present in our economy than it was a couple of decades ago. I would favor policies that would simplify the tax code to minimize those effects.

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