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


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tax cuts for the middle class permanent, and most Democratic legislators agree that the Bush tax cuts should only be rescinded for high earners.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.