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July 01, 2010

Obama Budget Panel Possibly Cooking Up Workable Solution?

Alan Simpson is one of ours; but what about Democrat Erskine Bowles?

Bowles is actually suggesting a not-so-horrible solution focusing chiefly (but only chiefly) on spending cuts.

Bowles, a North Carolina investment banker and former Clinton White House chief of staff, is suggesting a cap on overall government spending and revenue of 21 percent of gross domestic product. The federal government currently spends 25 percent of GDP and takes in 15 percent as revenue, though both numbers are a bit distorted by the recent recession. By 2035, according to the Congressional Budget Office, spending could leap to 35 percent of GDP with revenue at 19 percent. By those numbers Bowles is suggesting that some 90 percent of the gap should be closed by cutting the spending side of the ledger.


All this would, of course, require massive restructuring of social entitlements. In return, other panel Democrats would demand higher taxes a supposed no go zone for Republicans. But perhaps such a heavy bias toward spending cuts could pry loose a couple of GOPers if tax increases focused on eliminating breaks rather than raising rates.

Then again, tax increases of any sort might not be necessary, assuming spending cuts. If the economy grows somewhat more like it has through the 20th century than what is assumed by dreary CBO forecasts, that alone would reduce projected budget deficits by 25 percent in 2035.

One way to view this is that if Erskine Bowles is offering this as his first negotiating point, we can pull him closer to something good.

One suspicion I have, though -- and I may be overthinking/conspiracy-theorizing here -- is that if Bowles and Simpson have made a deal, where in they swap places, basically, and Bowles offers a spending-cut heavy plan to try to win over the Democrats, but Simpson will reciprocate and sell the GOP on higher taxes.

Each man agrees with the other to use his credibility with his respective tribe to push the other's priority, figuring, perhaps, that that way, at least they can get both sides closer to each other for a deal.

I realize this opinion may not be popular, but several years after the Bush tax cuts I thought he'd cut tax rates too much, since, even in the growing-economy years of 2006 and 2007, we were still running a $200 billion deficit. Yes, I know, he also overspent, but one has to calculate the nation's unending appetite for government spending into one's budget plans. (The nation claims a higher commitment to lower government spending than it actually believes in; a lot of people are rugged individualists with no need for government money at all, at least until their own subsidy is on the chopping block.)

I started to think that rather than cutting to nice multiples-of-five numbers 10%, 15%, and 25% for the lower income brackets, he should have cut (later data suggested) to 10.5%, 15.5%, and 25.5%, or even 11%, 16%, 26%. Not that he should have known this a priori or anything; but if a deficit remains persistent (even if relatively small) in times of growth, then your income to outgo ratio is off. Either one needs to be higher or the other lower.

I'd've preferred Bush hadn't just spent himself up a storm, but, if he knew himself he was game for some Big Daddy Government, he should have been a little more conservative on the tax-cut side.

There's a certain moral issue that attaches for many (including me) about running up the debt rather than getting our priorities and budgets squared away and shipshape. Certainly his relatively puny deficits were used against him politically.

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posted by Ace at 03:01 PM

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