Cut the Deficit!

The New York Times has provided a neat interactive graphic that allows one to see how various proposals affect the budget deficit in 2015 and 2030, here.

Here is the enormous impact on the deficit from eliminating earmarks.


Figure 1: from Budget Puzzle: You Fix the Budget, NYT, November 13, 2010, imposing elimination of earmarks.

Warning: You have to forego fantasy-land beliefs in extreme supply-side responses to tax cuts, as illustrated in the examples in this post.

23 thoughts on “Cut the Deficit!

  1. Dan Weber

    People who are serious about cutting the budget have realized for a long time that earmarks are not any big piece of the puzzle.
    However, they may have a separate corrupting influence on government, in that a Congress votes for something that he thinks is a bad idea — perhaps even unconstitutional — in exchange for his district getting some pork.

  2. Steven Kopits

    Fascinating little tool! Don’t know if I believe it, but it’s quite interesting.
    I managed to just about balance the budget, almost entirely through budget cuts. I suppose that reflects my biases.
    I didn’t however see some tax increase items I would have supported:
    – carried interests for fund managers should be taxed as regular income. It’s a bonus, nothing more, nothing less.
    – a blanket AMT. Buffet complains that he has a lower tax rate than his secretary. I could envision a kind of AMT which would put his rate around 35% (for realized income), even if it arises from dividend income.

  3. Matthew

    I think the take away from this is you have to reform Medicare. The only single option that did anything serious about cutting the deficit was
    “Cap Medicare growth starting in 2013”. That cut the deficit by $562 billion by 2030.
    The fact of the matter is that it is entitlements that are killing us.
    Okay, the other two options that had a good impact were “Bowles-Simpson plan” plus keep higher tax rates and implement the VAT. Good luck getting either of those passed.

  4. 2slugbaits

    How do any of the adjustments to Social Security have any long run effect on the debt? For each dollar that goes into the Trust Fund there is a corresponding $1 increase in the intragovernmental part of the total national debt. It’s dollar for dollar. In the short run there is a temporary decrease in the deficit, but eventually all of those IOUs in the intragovermental part of the national debt have to be cashed in. The only way changing Social Security rules lowers the debt is if those accrued IOUs are never cashed in. Oh wait, I guess that’s the idea.
    Now it may well be true that in 30 years the Trust Fund won’t have enough accrued IOUs to pay out full benefits, but that just means benefits get cut to 125% of current benefits. Shortfalls to Social Security have no effect on the national debt because over the long run Social Security is a PAYGO system. Fixing Social Security so that it’s fully solvent over the long run is no doubt something worth doing; but the Commission’s charter was to address the national debt and not to try and fix Social Security.

  5. rayllove

    You are giving away the fact that you are an ‘Angry Bear’.
    Bruce and Dale would be proud if they each read your previous comment, and I don’t mean that in any negative sense.

  6. Andy Harless

    “You have to forego fantasy-land beliefs in extreme supply-side responses to tax cuts”
    I also have to forego my fantasy-land (more like horror fantasy-land) beliefs about substantial demand-side responses to tax cuts and spending increases in the context of a zero interest rate constraint (and a balance sheet recession with widespread liquidity constraints). Unfortunately I continue to live in this horror fantasy land in which the CBO’s static scoring assumptions for deficit reduction seem unreasonably optimistic.
    (On the other hand, the long-term baseline projections seem like total speculation. I’m willing to believe that the baseline will turn out much better than expected, which could offset the demand-side revenue feedback from deficit reduction policies. We might end up with a manageable national debt, but at the expense of having many person-years of lost employment and output.)

  7. Brent Buckner

    Well, yes, but what’s the marginal cost versus the marginal benefit? Maybe the first cheaper cuts are to earmarks. Also, cutting earmarks might demonstrate that cutting earmarks isn’t an effective way of salvaging the budget that the legislators are holding back, and also provide some leadership on the “shared pain” notion.

  8. altereggo

    Easy, just not politically feasible: got the long-term deficit down to $3b, and could have cut the Afghan war to eliminate the short-term.
    69% spending cuts, 31% tax increases, including a fantasy-land carbon tax and no VAT. No significant cuts to federal spending outside medicare and army size.
    The solution is simple: don’t give people as much money in medicare, but give it to the largest number of people you can. Gets the most quality-of-life bang per buck.

  9. Bryce

    How can you factor in the likely secular increase in interest rates over the next decade?
    And unfunded liabilities dwarf explicit deficits.

  10. martin knight

    None of the commentary I’ve seen about the interactive tool both here and at the NYT and other places has mentioned the negative secondary effects the changes have on the economy and so the deficit; it’s not a closed system. Studies have shown spending cuts are less harmful than tax increases in this regard especially higher income taxes.

  11. kharris

    Martin K,
    The results you mention, if memory serves, have to do with periods of economic weakness. Spending cuts hurt less than tax hikes in times of economic weakness. Reasonably, we should not consider either in times of economic weakness. In a properly run set of policies, the finding you mention would have no real-world significance.
    In normal times, the questions that needs to be asked right off the bat regarding taxes and spending are “what do we want government to do?” and “how much should each of us pay?”. Within reasonable limits, tax decisions change outcomes in the short term far more than in the long term, so we can, in good times, decide what sort of government we want and how to pay for it, without regard to short-term changes in outcomes.

  12. Wisdom Seeker

    Does it include a proper restructuring of the healthcare system to match the cost-per-capita of the numerous advanced economies who have both far lower health costs and greater life expectances???
    Dean Baker had a nice post on Beat The Press (which I am not all that familliar with yet, however) citing a site which shows budget surpluses into the future if we just fix the medical system. You have to click on one of the countries in the list to see what our budget situation would look like if we adopted their system and matched its cost-per-capita. (Note that demographics may play a role in some cases … but not all.)

  13. VinceInSeattle

    I wonder if this budget exercise could be adapted to real-world budget setting. Here in Washington state, where we have the initiative and referendum, the people regularly vote for new spending, then separately vote for new limits on taxation. Nationally we have politicians who are rewarded for mathematically nonsensical positions, such as eliminating the deficit while decreasing taxes, raising defense spending, and leaving entitlements alone. I wonder if there’s a way to aggregate the data from exercises like this in a way that reflects voter preference as well as mathematical reality.

  14. Hitchhiker

    Wisdom seeker:
    By proper restructuring, I assume you to mean the nationalizing of medical care so that expenditures can be determined and allocated by political entities subject to the wishes of their constituents rather than by those same constituents themselves as they deem fit. With the former, the amount spent can be set as one lump sum and then divvyed up to those in need based on such compassionate measures as age, political connections, prior health issues etc. etc. The latter would simply be a summation of all individual decisions and thus unpredictable.
    End of life decision making would, of course, be very arbitrary and unpredictable but, you can’t have everything. At least our per capita expenditures would be set in concrete.
    I will certainly fight to get and use my fair share even if I don’t need it. I certainly hope, for your sake, that you don’t need more than your fair share since it will not be forthcoming at any price.
    Proper is as proper does Mr. Gump might say.

  15. Heterosexual

    I found it quite easy to create a surplus by 2030, and get 2015 to almost breakeven, without raising any taxes at all.
    In short, making medicare available only after age 72 is the answer. Period.

  16. Heterosexualt

    Warning: You have to forego fantasy-land beliefs in extreme supply-side responses to tax cuts, as illustrated in the examples in this post.
    Interesting how low-tax fiscal conservatives can easily find a set of cuts that makes them happy, even within the NYT calculator. I found a number of combinations that I am satisfied with, that easily erase the 2015 and 2030 deficits.
    Menzie’s expectation that fiscons are as fanatical and unreasonable as leftists once again proves that the left is about projection, and nothing else.
    For example, everything the left says about the Tea Party is actually more true of the left than anyone else.

  17. Menzie Chinn

    Heterosexual(t): I expect no less idiosyncratic view from you, given that you wrote (in your “David” guise, on 8/26/2010):

    …Nazi Germany was, in fact, leftist. They were called the Nazi Socialist party.

    If that’s your view of the world, leftists are indeed rightists.

  18. Heterosexual

    Nazi Germany was, in fact, leftist. They were called the Nazi Socialist party.
    That is correct. The state controlled many industries, including healthcare, and small businesses did not have it easy.
    Whenever a leftist fails spectacularly, the left tries to rebrand him as ‘right wing’, as they attempt to do with Hitler.
    But all genocidal regimes are left-wing (Hitler, Stalin, Pol Pot, Mao, Saddam, Castro, Mugabe), since the left views humans as being on the ‘liability’ side of the ledger, rather than on the ‘asset’ side. Note the barely concealed genocidal overtones of many environmentalists.
    Now, changing the subject to escape accountability is what leftists also do, as Menzie has demonstrated.

  19. aaron

    Low interest makes deficits beneficial. My problem is with the increased spending, not the deficit. It was also part of my support for deficit spending and the Iraq war. However, I am becoming weary of deficits themselve because I suspect that the low interest rates are due to fed and not natural.

  20. aaron

    Doesn’t the fact that spending decreases “hurt less” than tax increase tell us someting about tax cuts vs. spending icreases?

  21. JBH

    This NYT interactive graphic and the comments here overlook the most important and sensible way to reduce the deficit — grow the economy. Growing the economy is the only solution in perfect alignment with reducing the deficit, creating jobs, raising the average family’s standard of living, and a host of other goals of virtually all Americans.

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