The Budget Debate
Columnist Robert J. Samuelson describes the Budget debate as
each side trying to embarrass the other, without ever confronting the truly important budget issues
What both sides are trying to avoid discussing, according to Samuelson, is the anomalous structure of entitlement spending.
The Congressional Budget Office projects that from 2000 to 2030, the costs of Social Security, Medicare and Medicaid will rise from 7.6 percent of gross domestic product (GDP) — our national income — to 13.9 percent…In today’s dollars, covering these costs would require tax increases exceeding $600 billion annually.
Economists understand the real issue, but they also participate in the political posturing. Nobel Laureate Robert Solow is one of the signatories to this petition.
Passing these tax cuts will worsen the long-term budget outlook, adding to the nation’s projected chronic deficits. This fiscal deterioration will reduce the capacity of the government to finance Social Security and Medicare benefits
On the other hand, in this forum (audio format), Solow views the entitlement crisis not as a fiscal issue, but as a problem of demographics. His analysis (starting about 29 minutes into the forum) tracks almost exactly with this essay.
My personal opinion is that the concern over long-term Social Security financing provides only the weakest rationale for opposing a stimulus policy. Long-term entitlement spending and short-term macroeconomics ought not to be conflated. The petitioners know that, and they do a disservice by not making the point clear.
On the other hand, what the Bush administration proposes more closely resembles tax reform than economic stimulus. Its economists know that (Glenn Hubbard’s case for eliminating double taxation of dividends in no way depends on the economy being below full employment), and they do a disservice by not making the point clear.
The net result is, as Samuelson points out, that the debate on both sides consists of “much invective and little insight. ”
For Discussion. Why would we expect an economist’s signature on a petition opposing the Administration’s tax cuts to attract more attention in the press than his analysis of the entitlements crisis?