Home > David Leonhardt, Deficit, Marginal Revolution, The New York Times, VAT > Oh Ya, Just Cut Spending…

Oh Ya, Just Cut Spending…

Anytime a discussion comes up about fixing the budget deficit and someone suggests that we should just cut spending recognize immediately that they probably don’t know what they’re talking about. If they do know what they’re talking about (doubtful), chances are they are being deliberately naive. David Leonhardt in The New York Times shows us why. My stomach sank a little when I read these numbers.

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.

This is why I continue to favor cutting spending along with phasing in a VAT (while dialing down other less efficient taxes).

(via Marginal Revolution)

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  1. October 7, 2010 at 3:20 pm

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