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How Do We Get Out of This Deficit Mess?

This post from Greg Scandlen:

Martin Feldstein and the Deficit
Martin Feldstein had an excellent op-ed in the Wall Street Journal this week. He begins to address a question that has been eating away at me. How can we ever get out of the deficit mess we are digging? I have asked a number of economists – is there anything, any theory, even any fantasy scenario, that will get us out of the $9 trillion (and rising) debt we will pile up in just the next ten years? That averages $900 billion a year, every year, and growing. Is there any possible answer? I have yet to get a response.
Mr. Feldstein’s article tells me it is even worse than I imagined. He writes, “The deficits projected for the next decade and beyond are unprecedented. According to an assessment released in March by the Congressional Budget Office (CBO), the president’s budget implies that deficits will average 5.2% of GDP over the next decade and will be 5.5% of GDP in 2019.” But then he adds, “The CBO’s deficit projections are based on the optimistic assumptions that the economy will grow at a healthy 3% pace with no recessions during the next decade; that there will be no new spending programs after this year’s budget; and that the rising national debt will increase the rate of interest on government bonds by less than 1%. More realistic assumptions would imply a 2019 deficit of more than 8% of GDP and a government debt of more than 100% of GDP.”
He says Obama must, first, drop his health plan. It would add at least another $1 trillion to the deficit, but “the actual costs would be much higher (because) $1 trillion of extra debt-financed spending would cause the government to pay about $300 billion of extra interest in the next decade. Moreover, the CBO’s method of estimating the cost of such a program doesn’t recognize the incentives it creates for households and firms to change their behavior.”
Finally, he dismisses Obama’s promise that his health care will not add to the deficit. To the extent it is paid for with tax increases, those taxes will not be available to offset the existing deficit, and because revenue projections always exceed the reality because people respond to changing conditions with tax minimization strategies.
Wall Street Journal


September 11, 2009 - Posted by | Cost, Federal Government, healthcare | , ,

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