October 23, 2014

No Joke: “Deficit Reduction” Requires Actual Deficit Reduction

  • The nation's fiscal future depends on the balance between the spending in the federal budget and the revenues flowing into the treasury. Tax policy...

Could you loan me ten dollars but just give me five? That way you’ll owe me five, I’ll owe you five, and we’ll be even.

That old joke reminds Concord Chief Economist Diane Lim Rogers of a current policy issue: Whether to extend the Bush tax cuts. President Obama seeks an extension of the cuts for the middle class. But he does not want to extend the cuts for upper-bracket taxpayers, a stance that the administration describes as around $700 billion in deficit reduction over 10 years.

In a new blog post, Rogers challenges that terminology. Relative to current law, she says, the president’s plan for upper-bracket taxes would not reduce the deficit at all. Meanwhile, Congressional Budget Office figures show that extending the other parts of the Bush tax cuts would increase the deficit by $2 trillion over 10 years.

To bring federal deficits down to sustainable levels, Rogers argues, we need to pay for things as we go along. That includes paying for the extension of any policies that aren’t already continued under current law.