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