Friday, December 3, 2010

Op-Ed on Deficit Commission: fight it out now

I have an op-ed in today's Raleigh, (N.C.) News and Observer arguing that the President's Deficit Commission report is a good place to start discussions and that we need to go ahead and fight this out now and not wait for a debt-driven financial crisis to address our fiscal problems.

The Deficit Commission proposes to achieve balance at 21 percent of GDP, which would be a historical tax increase and a historical cut of spending seen at many points in the past 40 years. Here is an overview of historical spending and taxation levels the past 40 years.

Taxes and Spending as Percent of GDP, 1970-2009

Year

Taxes Collected, % GDP

Spending, % GDP

-Deficit/+Surplus, %GDP

1970

19.0

19.3

-0.3

1975

17.9

21.3

-3.4

1980

19.0

21.7

-2.7

1985

17.7

22.8

-5.1

1990

18.0

21.9

-3.9

1995

18.4

20.6

-2.2

2000

20.6

18.2

+2.4

2005

17.3

19.9

-2.6

2009

14.8

24.7

-9.9

source: my calculations from CBO sources.

The proportion of our economy that is redistributed by the federal government is a profound one that is deserving of reasoned debate. And every dime of government spending is redistributive because government's produce spending patterns that markets won't achieve. That is the point of government spending. It is not job food stamps that is redistributive. Every single dime.

Medicare, the earned income tax credit, home mortgage deduction, Social Security all produce patterns of spending that would not occur without government action. Medicare was created because society decided the outcome produced by the market (around 50% uninsured for those 65 and over in the early 1960s was not acceptable). The existence of the Department of Defense is an explicit claim that the market won't produce the appropriate amount of Military spending our nation needs, and that government knows how much we need. So, don't say you are opposed to redistribution unless you want 0 government spending. Say which redistribution you are opposed to.

Update: The Medicare example is better to illustrate the point that govt action is a rejection of what the market would otherwise provide and not defense since 'the common Defence' is explicitly noted in article 1, section 8 of the Constitution, so there is the clear statement from the Constitution that the federal govt would be responsible for Defense. Article 1, sect. 8 also notes the 'general Welfare' as being a reason the Congress can levy taxes. Many disagree what is legitimately done by the federal government in this way....that is the conversation we need to have: how much 'common Defence' and how much 'general Welfare' we will have and then we need to pay for it.

Bottom line: lets fight it out now and not wait for a debt-driven crisis that gives us fewer options and less time.

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