Crisis? What Fiscal Crisis?

Dec 11 2012 @ 12:53pm

Bruce Bartlett reads the GAO’s latest report on the debt. Money quote:

The G.A.O. projections are a best-case situation insofar as interest on the debt is concerned. It could get a lot worse very quickly, and at that point it is almost a certainty that taxes will rise far more than would be necessary to stabilize the debt-to-G.D.P. ratio and hence interest on the debt. Therefore, the absolutist position against raising revenue is essentially penny-wise and pound-foolish.

It’s too bad that misplaced fears about the fiscal cliff have taken off the table the option of simply letting all the automatic tax increases and spending cuts go into effect. While this would indeed reduce short-run growth, the Congressional Budget Office says the reduction in projected deficits would actually raise growth in the medium- and long-term (see pages 24-25 of the report).

Advantage: Obama. What we’re now seeing are the fruits of the long game. We have to cut entitlements; but we also have to raise taxes. Which is what Obama will achieve even if he fails in his negotiations with Boehner.