The Deficit Argument, V
David Warsh gives one of the more sober overviews of the debate over tax cuts, the deficit, and Social Security.
There are two basic issues in US tax policy — the question of the size of government and the health insurance/pension problem.
…During the 1990s, the federal share of GDP climbed steadily from its thirty-year average of around 17.5 percent of gross domestic product until it reached 19.2 percent in fiscal year 2000
…It is this higher percent governmental claim on the nation’s resources that George W. Bush’s 2001 tax cuts were designed to roll back — from around 19.2 percent to the 17.5 percent level, where revenues were when Bill Clinton took office.
As I see it Warsh is making two major points. First, there is a debate about the best size of government, with Republicans wanting to shave it by about 1 or 2 percentage points as a share of GDP. Second, there is a long-run “train wreck” coming in the form of entitlement spending on the Baby Boomers. In my view Democratic economists keep using the second issue to try to score points on the first issue. Economists for both parties are not particularly forthcoming to the public about the train wreck.
For Discussion. Warsh concludes that, “There’s absolutely nothing flaky about George Bush’s economics. Like his war in Iraq, he is deliberately taking a risk.” Can this risk be evaluated objectively? At historical measures of growth, what is likely to happen without major changes in entitlements, tax rates or rules of eligibility?