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Home Publications Blogs Beat the Press Cheap Deficit Tricks from Robert Samuelson

Cheap Deficit Tricks from Robert Samuelson

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Tuesday, 20 April 2010 10:07

Washington Post columnist Robert Samuelson makes a habit of using sleight of hand to promote fears about the budget deficit. He was in fine form yesterday in a column that argued that a value added tax offered little hope of addressing the deficit problem.

Samuelson told readers:

"By 2020, it could reach 25.2 percent of GDP and would still be expanding, reckons the Congressional Budget Office's estimate of President Obama's budgets. In 2020, the deficit (assuming a healthy economy with 5 percent unemployment) would be 5.6 percent of GDP. To cover that, taxes would have to rise almost 30 percent"

A 30 percent increase in taxes sounds pretty scary (that's percent, not 30 percentage points), but it is also beside the point. There is no reason to balance the budget in 2020 or ever. The key point is that the debt to GDP ratio cannot be growing indefinitely. To get the deficit down to a level that is consistent with a flat or declining debt to GDP ratio we would need to bring the deficit down to about 3.0 of GDP. The revenue needed to meet that target would involve a tax increase of a bit more than 10 percent or about 2.6 percentage points of GDP. That is not trivial, but not especially terrifying. We have been there before.

The problem is that once you move beyond the cheap tricks, Samuelson really doesn't have much of a story. Hence the need for cheap tricks.

 

--Dean Baker

 

 

Comments (11)Add Comment
And you expected something else?
written by PeonInChief, April 20, 2010 1:25
And it's sleight of hand.
...
written by izzatzo, April 20, 2010 1:26
How many socialists does it take to add value?

None, they live on subtracted value.


How much tax collected from a Subtracted Value Tax (SAT) will it take to reduce the deficit?

None, it's a double negative that increases the deficit.


Stupid liberals.
...
written by vorpal, April 20, 2010 4:31
Izzatzo, "is that so", the puerile behaviour of writing "Stupid liberals." doesn't help you at all, so why do it?

The only person it denigrates is you.

Just something to contemplate.
...
written by vorpal, April 20, 2010 4:43
As for the piece, I agree that the budget deficit, unto itself, is not necessarily a problem (and my guess is that's how Samuelson presented it).

But I do think that in the current context of the global economy, it does reflect a systemic problem, economically speaking. Racking up large public debt allows the current account to be in substantial deficit. That means the US is accruing real debt that it must be paid in the future. At the same time, the United States has become less and less capable of paying that debt. The rising cost of oil along with the attrition of the manufacturing industry give the US an ever increasing risk profile.

The large deficit may indicate that the US is betting on a future that may not be there. The country was built on petroleum energy, and it is virtually certain that the US with have to cope with an ever diminishing consumption share of the diminishing global oil export market.

The US economy is in a bit of a hole right now, and public policy seems to be "keep digging."
...
written by Brooks, April 20, 2010 11:10
That’s an unintentionally interesting juxtaposition of assertions. It’s certainly true that we never need to balance the budget. It’s also true that the key objective is to prevent debt-to-GDP from reaching harmful levels. But another objective is to plan our public finances such that we can afford to tax and spend per our priorities not just between now and 2020, but beyond 2020. Thus, Dean’s overall argument misses the key context, which is the harmfully (and unsustainably) large projected long-term debt-to-GDP, driven by the predictable growth in the senior population coupled with rising healthcare costs (much of which can’t be reduced without substantial sacrifices in access to and quality of care, but let’s not get sidetracked by that debate, because it’s not the point here).

When we expect to have difficulty affording something on which we wish to spend in the longer-term future, we can choose between two approaches, (1) in the interim, simply manage acceptable deficits and debt-to-GDP rather than lower deficits (or even surpluses) and lower debt-to-GDP, leaving greater sacrifice for the longer-term, or (2) achieve better than just acceptable deficits (or even surpluses) and debt-to-GDP in the short/medium-term to make those things we’d like to have in the longer-term more affordable – in other words, to sacrifice more than necessary in the short/medium-term so we don’t have to sacrifice quite so much in the longer-term, thus smoothing out the sacrifice over time (and across cohorts/generations to some extent).

Think of this analogy. You want to send your 8 year-old kid to college in 10 years. You also know that when that time comes, your overall spending will increase substantially, all the more so if you want to pay for the best college your kid can get into even if it’s far from the cheapest. Now, you could just go each year over the next 10 years with personal deficits and debt levels that are acceptable, but no better, and thus find yourself much more limited in what college you can afford to pay for (leaving aside student loans; I’m just making a general point here), or you can run surpluses – i.e., achieve a better budget balance situation than you need to in the short/medium-term – so that you don’t have to sacrifice as much in the longer-term when it’s time to pay for college.

So, getting back to Samuelson’s point, it is quite reasonable to argue that we need to do much better than just acceptable deficits and debt-to-GDP by 2020 if we want to mitigate sacrifices in subsequent decades. Perhaps we should even be running surpluses if we mitigate the cuts in projected spending (including seniors’ benefits) and/or tax increases that we face beyond 2020.

Therefore, Dean has made a technically correct point, but because he conveniently ignores context and the desirability of rational choices in fiscal policy (in this case balancing our priorities and sacrifices over time), he characterizes Samuelson’s point unfairly.
...
written by Brooks, April 20, 2010 11:12
oops, I meant to quote Dean at the top of my comment. My comment refers to the following from Dean:
There is no reason to balance the budget in 2020 or ever. The key point is that the debt to GDP ratio cannot be growing indefinitely.
...
written by vorpal, April 21, 2010 12:31
Brooks said:
"Thus, Dean’s overall argument misses the key context, which is the harmfully large projected long-term debt-to-GDP, driven by the predictable growth in the senior population coupled with rising healthcare costs."

The above is simply conventional media-driven drivel. Pure, unadulterated drivel. Rather than explain why, I refer the reader to the 'Beat the Press' archives.
...
written by Brooks, April 21, 2010 9:00
Well, I tried to avoid anyone getting sidetracked from my point, but apparently it didn't work with vorpal. Sure, if we just assume away the projected harmful levels of deficits and debt-to-GDP with convenient assumptions that we can contain healthcare costs just fine and without significant sacrifices in quality and/or access to care, then my point about context is moot. But hopefully most people aren't so long gone with their own hyperpartisan echo chamber drivel that they thinks it's downright absurd to be even skeptical of the validity of those assumptions, so I ask others to assume otherwise for the sake of my point, which is that, if indeed we face those long-term budgetary pressures requiring major sacrifices beyond 2020, then sacrificing more before 2020 (i.e., lower deficits than are necessary in the short term) can help mitigate the degree of sacrifice required beyond 2020. Hopefully my point is clear, although I don't expect the regulars here to acknowledge the validity of my point.
Give another SS-bashing point to Samuelson
written by skeptonomist, April 21, 2010 10:04
Samuelson is a writer who relies on indirection and deception. Typically in the first part of his column he brings up an interesting or valid point. In this case he actually has some good arguments against a VAT. Then in the second part, in what is often a complete non-sequitur, he claims or implies that the only solution is dogmatic "conservative" economics. In this case, he doesn't spell it out but the implication is that entitlements must be cut.

Along with many other WaPo pundits and even the "news" reporters (as Dean often points out), Samuelson makes an implicit and completely invalid assertion that Social Security is or will be a cause of deficits. Their bonuses must be tied to the number of times they sneak in a bash at SS.
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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