Budget

Doing Nothing on the Deficit: Not a Good Option, Not Going to Happen

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A number of folks have floated the idea of a "do-nothing" plan to balance the budget: If we stay on the course set by current law, revenues and expenditures basically balance out over time. Slate's Annie Lowrey writes that it's "meek, cowardly effort to wrest the country back into the black." All Congress has to do is "leave everything as is."

Is it really that easy? Not really. The most important thing to understand about the idea is that no matter which party is in charge, it's not going to happen. The most obvious reason why it's not going to happen is that it would require the president and members of Congress to agree to allow the Bush tax cuts to expire—all of them. The Obama administration has already made it fairly clear that it wants to make tax cuts for the middle class permanent, and most Democratic legislators agree that the Bush tax cuts should only be rescinded for high earners. Republican leadership, meanwhile, has flatly ruled out raising taxes on anyone. 

Following current law with no changes would also mean allowing physicians' Medicare reimbursements to drop by about 30 percent at the end of this year, when the current temporary extension of the "doc fix" runs out. As with the middle class tax cuts, that's simply not going to happen. Regardless of the merits, neither party wants to be blamed for dramatically cutting doctors' Medicare pay—and seniors' doctor access with it. 

So it's not remotely plausible given both party's current political commitments. But if it were, would it be desirable? It's not necessary to be a limited government fanatic to say no. Anyone who's wary of a radical transformation of the role of government in American life should similarly be wary of this idea.

The plan balances the budget primarily by calling for tax revenues to grow with government spending. In particular, it allows the Alternative Minimum Tax, originally designed to tax just 155 ultra-wealthy earners, to eventually hit half the country. And since spending is projected to grow at a much faster rate than the economy, so would taxes. Over the long term, then, government would account for a much, much higher percentage of the overall economy than it ever has before, eventually eating up more than 30 percent of projected gross domestic product.

There's no historical precedent for collecting revenue at even close to that level. The federal government has never once collected revenues in excess of 20.9 percent of GDP and has averaged about 18 percent since World War II. This would mean increasing tax revenue—and the overall size of government—by more than 50 percent relative to GDP. And as The Examiner's Philip Klein notes, the plan also ignores the effects of taxation on economic growth. According to the Congressional Budget Office: "Raising revenues significantly relative to GDP (as under the extended-baseline scenario) would harm the economy through the impact on people's decisions about how much to work and save."

The do-nothing plan is illustrative in certain ways, and makes for an interesting thought experiment. But it is not a simple plan for balancing the budget. It's a fundamental transformation of the role of government in America. 

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  1. Sorry for the threadjack. But it looks like China’s real estate bubble is finally going to pop. This should be interesting.

    Chinese Real Estate Bubble Pops: Beijing Real Estate Prices Plunge 27% In One Month

    http://www.zerohedge.com/artic…..-one-month

    1. Interesting to see how that plays out. Maybe “The Truth” can enlighten us on how China’s wise policies will save their economy from a Real Estate collapse.

      1. These are obviously lies, etc, etc. Then include some made up facts.

      2. Someone needs to ask “The Truth” about this report on the PBS Newshour about people in China getting sick making iPhones:

        JIM LEHRER: Finally tonight, human costs from China’s industrial revolution.

        Special correspondent Jeffrey Kaye reports from eastern China for our Global Health Unit.

        KAYE: Low-wage workers in China’s industrial heartland are increasingly speaking out about labor conditions. Workers at this factory say that, in 2009, they were poisoned making iPhones.

        MAN (through translator): I want to tell all the American consumers the story behind the iPhones. We made iPhones with our health.

        JEFFREY KAYE: Interviewed in a dormitory for factory employees, these workers say they cleaned iPhone screens using n-hexane, a toxic chemical made from crude oil.

        WOMAN (through translator): I used my left hand to hold the iPhone screen when it came down the work line. And with my right hand, I used a cotton cloth dipped in hexane to wipe the screen.

        JEFFREY KAYE: Independent studies from around the world have determined that the chemical the workers used, n-hexane, causes neurological damage ranging from dizziness to paralysis. Those symptoms compare to ones these workers say they suffered.

        MAN (through translator): I have sweaty feet and hands. I feel very tired.

        WOMAN (through translator): At the very beginning, I didn’t know I was sick. I just felt weak and tired. Then, slowly, I found it difficult to walk or go up the steps of the bus. Then, one day, I fell over and decided I needed to check what was wrong with me. So, I went to a hospital. I went to many hospitals in many cities. I eventually became very ill. I couldn’t walk. I couldn’t wash my hair. I had become very weak.

        JEFFREY KAYE: Is there anyone else here who was hospitalized?

        How long were you in hospital?

        MAN (through translator): From November 2009 until July 2010, so about eight months.

        http://www.pbs.org/newshour/bb…..04-13.html

        1. I love the fact that Apple users seem to be insufferable proggie douchebags while Apple itself is more evil than Microsoft. But it’s stylish. Of course, you know who else was evil and stylish?

          1. cruella de ville

          2. Stereotype much? I drive a Subaru too.

    2. From the article:

      …that while most foods continue to rise modestly, several food products have plunged particularly cucumbers and rapes,

      Where is this rape food, and how can I obtain it?

      1. Ask Steve Smith.

  2. Pretty much by its own definition, the plan is not really a ‘transformation’ fundamental or otherwise. It’s just more of the same, or, more pithily, “the same only more so.”

  3. Part of me almost wishes that the Bush tax cuts would expire just so that the left-wing fantasy that we can balance the budget simply by letting the Bush tax cuts expire could be exposed as the giant pile of bullcrap that it is.

    1. What you don’t trust them? You think that just because they have money means they will spend it? Where did you get that idea?

      1. It’s not only that, it’s that “the rich” simply don’t have that much in income to offset how much we’re in the hole. You could take 100% of the income in excess of $250k from everyone making that much and it still wouldn’t fix the problem (not to mention people would rapidly stop making any more than that). The idea that somehow we can fix our overspending by just jacking up tax rates is a laughable fantasy, particularly when we’re talking jacking up taxes on what amounts to a very small portion of the population.

  4. “Doing nothing” only works if you assume the (private) economy will expand. I have pretty much discarded that hope, based on the government’s obsessive-compulsive “fine tuning” of the economy.

    1. That goes to show you that it has nothing to do with helping the poor or anything but power. If you actually cut the bureaucracy and reduced the scope of government, it would probably grow enough to solve a good portion of the entitlement problem. But they want no part of that.

  5. This doesn’t square with the hysteria. “We must enact the Republican Darwinian hellscape now or our children and grandchildren will all die!”

    1. I have a disease; suck me.

    2. No, but it does square with “let’s actually have a logical and factual discussion of what is to any reasonable observer a huge debt problem”, which neither the Republicans nor the Democrats (and you, Tony) seemed to ever have any desire to do. I still don’t think they do, but that’s just me. They’re still talking the jive of the 20th century…they’re both anachronisms. How does it feel to be a relic, Tony?

    3. YAWN….oh, I’m sorry Tony, did you say something ?

  6. This is too funny. I hate new laws that are ex-constitution but there should be one that states that congress should have at least 2 semesters of economics before they are allowed to run for office. These fools really think that this will take care of itself? Actually, they’re right. The economy will crash and Ben will be run out of town on a rail.

    1. That sounds nice. But Krugnuts has a PHD in economics and it hasn’t made him any brighter.

      1. The thing about those holding a doctorate in any field of study is that they know a whole lot about a very small subset of their field. That’s one of the things that irritates me to no end about our culture right now: the assumption that because one has some letters after one’s name, that one knows something about anything having to do with the field. In fact, especially when economics are involved, it seems those with advanced degrees are merely using them as credibility generators to shill their own opinions, which are about as worthwhile as anyone else’s. Piled higher and deeper really seems to fit where Krugman, especially, is concerned, if you look at what his field of expertise actually is.

    2. I’d settle for a simple ability to add and subtract.

      1. No. We need lawyers in Congress. Law is right in their very name. How can someone without ‘law’ in the title of their profession pass laws without getting confused? About the law. They propose to pass. In Congress.

  7. Correction needed: the article currently refers to “government” in a few places where the facts refer to the federal government alone.

    In particular, federal plus state plus local spending has been over 30% for the last 40 years; it just topped 40%, and adding another 10% of GDP to federal spending would leave us with more of the economy under government control than under private control.

    Total spending went up to over 50% of GDP briefly during WWII, but it had jumped up from ~20% before (~10% before the Great Depression) and it initially fell down to around 20% again afterward. I don’t expect a declaration of victory this time.

    1. Victory is mine!

  8. Admittedly, I rather like the candor of those who argue for a middle and working class tax increase. The uber-rich simply can’t shoulder the burden of this gov’t themselves. As I have pointed out repeatedly, and will continue to, you can annex every dollar earned in excess of $250k by every household in the country and still not pay this year’s deficit alone.

    The fact remains that, if you intend to balance the budget only through revenue growth, the lower and middle classes need a significant tax increase. And you know what? They ought to if they want all these old people goodies, because these old people goodies are majoritarian programs that benefit the middle and lower classes relatively greater than the upper crust.

    Don’t tax the rich; TAX THE POOR!!!!

    /wipes monocle and adjusts tophat

  9. When I think do-nothing, this isn’t what comes to mind. Do-nothing would be more like leaving the budget exactly how it is, and no longer increasing spending on anything per the inflation adjustments and all the rest of it. That seems like an actually feasible way to eventually get things under control. Don’t cut anything, just stop increasing spending. Revenues might even catch up some day.

    1. Unfortunately that would not be “do-nothing”…it would involve passing a number of new laws that would change the way most of the social programs hand out benefits. The laws as written raise benefits annually without any new laws being passed by congress.

      What you are proposing is a spending freeze, which would be better than either the Ryan or the Obama plan…but still not going to happen.

  10. you can annex every dollar earned in excess of $250k by every household in the country and still not pay this year’s deficit alone.

    Preposterous! The median income in this country is $250k. I mean, that’s the impression I get from listening to the news.

    1. Mrs Suderman had a great post on this subject. The combined wealth of every billionaire in America is something like 1.3 trillion dollars. So you could confiscate all the wealth of every billionaire and still not finance the deficit for this year.

      We are seeing Margerat Thatcher’s point about the problem with socialism being eventually you run out of other people’s money played out in real life.

  11. I am toying with the Snake Plissken solution.

    Snake is the main character epic movies Escape from new York and escape from LA.

    At the end of the Escape from LA movie Snake ends up in possession of a device that if triggered will shut down all electricity in the world. Essentially reverting the world to the stone age.

    The scene is pure gold. The bureaucrats are telling Snake to hand over the device so that everyone is safe of course Snake’s character thrives in a world that is unsafe.

    The choice he makes, although surprising, is perfectly consistent with Snake’s character. Snake instead of handing it over, switches it on and ends the world to create a new world in which he would thrive.

    Obviously i have no such device…..but as a libertarian i am beginning to think that the economic and financial ruin our country is headed towards might not be all that bad.

    Perhaps a libertarian could thrive in such a world much better then in the world we have now.

  12. You’re right that there is no easy solution. I just hope that America will be able to continue to hack away at government spending.

    http://www.intellectualtakeout…..uestions#9

  13. Doing nothing is the best policy. The budget will definitely balance itself but just not in the way the current players are thinking of when they think about balancing a budget.

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