Deficit Reduction Plans Used to Have a Better Balance

July 7th, 2011 at 11:50 am

Word is that progress is being made on a budget deal that would garner the needed support to raise the debt ceiling. If so, good. But one thing to stay nervous about is whether the share of revenues in the deal is too small relative to the share of spending cuts.

This matters not for aesthetic reasons; it matters because if the path to a sustainable budget is lined largely with spending cuts, the damage we’ll do to the ability of government to protect the vulnerable, provide health and income security to retirees, and invest in the future will be too deep. The deal will have come at too steep a price.

And for the record, earlier deficit reduction deals maintained a decent balance in this regard. My CBPP colleague Kathy Ruffing crunched the numbers based on various sources (CBO, CRS, Treasury).

The Deficit Reduction Act of 1984 reduced the deficit by 0.5% of GDP over five years (back then, they did five-yr scores), with about an 80/20 split, revenues to spending cuts. That’s right—President Reagan would be drop-kicked out of today’s Republican party in a New York minute!

The 1987 Budget Summit reduced the deficit by 0.7% of GDP over 5 years, with about a 40/60 split, revenues to spending cuts.

The Omnibus Budget Reconciliation Act of 1990 reduced the deficit by 1.4% of GDP, and OBRA 93, by 1.2%.

(Note: I’m leaving out the Balanced Budget Act of 1997; it cut taxes and only reduced the five year deficit by 0.2% of GDP.)

So listen up, D’s: In no case was the revenue share less than a third of the deal, and that includes the days of Ronald Reagan. I see no reason to break the precedent.

Sources: see text.

(Note: Ezra has a similar take on Kathy’s numbers.)

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7 comments in reply to "Deficit Reduction Plans Used to Have a Better Balance"

  1. Tyler says:

    Who are “the vulnerable”? People without a college degree?

    I understand where you’re coming from on the role of government, but I’ll be making it clear to my kids that their lives will be extremely hard if they don’t get at least a bachelor’s degree.


    • jo6pac says:

      If you can help them get Masters or earn a trade in something that’s needed everyday. Sad and it didn’t have to be this way. The overlords of dod vendors/corp. citezens are now firmly in control.


  2. John says:

    First, JB, this discussion has become totally divorced from any consideration of the real problem. You know. Unemployment.

    Second, in that spirit, let’s add some data (the unemployment rate):

    1984: 8.0% .. 7.3%
    1987: 6.6% .. 5.8%
    1990: 5.4% .. 6.3%
    1993: 7.3% .. 6.5%

    Without doing any calculations, I see a clear correlation of the unemployment rate to the ratios of revenue increases to spending cuts in these 4 years.

    Given this additional context and our current unemployment rate, shouldn’t the ratio be more like 5:1 or higher (R:S), not 1:2 or lower?

    I’m not being serious here, JB. I’m showing how easy it is to play this game. And that’s all it is – a game. Like musical chairs.

    BTW, saw you shortly ago with Ezra Klein on MSNBC. Ezra is a blogger. Period. BS in Political Science from UCLA. Not an economist, not a mathematician, not a rocket scientist or anything else like that. Just a student of conventional wisdom, like so much of the revered punditry of our day. Being a student of conventional wisdom really isn’t that hard, JB.

    Ezra is a prolific blogger, to be sure. Relative to authors (and software developers), though, not so prolific.

    He does a great Chinese room imitation of a geek economist. But he’s not an economist, and he only looks and talks like a geek. If he wants to actually be a geek – not just look like one – maybe he should try getting a PhD in something “techy,” like, I don’t know, computer science. Just sayin’.

    At the end of the show you were just on, Ezra was trying to complain about folks talking about nothing but deficits and ignoring unemployment. Like you two did – talk about deficits and ignore unemployment. So he’s trying to offer ideas about solutions to the unemployment issue, having not mentioned until the commentary at the end of the show. No new ideas, by the way; nothing an informed high school senior wouldn’t be able to glean from news reports, if all they did was read news reports.

    I don’t mean to be unkind to Ezra, but I’ve known dozens of Ezra Kleins who couldn’t cut it as PhD students. I’m glad someone does what he does; I just can’t take him seriously as a “leading pundit on economics,” and it’s frustrating that he’s about the best there is on the subject.

    Put another way; what’s troubling about Ezra is not Ezra; it’s how the rest of you pay deference to him – and should, since his content is so often better – with as little background and education as he has. That shows, to me, but apparently not to actual economists. No wonder none of the “progressive” economics community have any ideas, besides “we have a demand problem; we needed more stimulus.” Problems and solutions are entirely different things, and the lack of demand is a symptom, not a cause, of the problems. Maybe it just takes more than a BS in poli sci to see that. Sigh.

    It’s getting harder by the day to take any of this seriously. People are homeless and starving to death out here, while pretend pundits and capitalism-biased economists are playing mutual groupies for each other. I wanna puke.


    • jo6pac says:

      Yep, thanks they have no clue and nothing personnel but Jared can you go out into the real world and not the one of events for fellow $$$$$ people? When repugs announced there will be no unemployment extension after 7-1-2011 and no demodog comment, well what can I say. Amerika is about to see what Poland, Baltic States and Russia went through when Shock Doctrine swipe through the area like it did yrs before in SA. Yep uncle milton friedmans plan is coming home to finish of the middle class with 0 in charge. How sad for all in this nation that aren’t part of the overlords. Gardens and shop local with cash.


  3. Carol says:

    Lotsa luck in getting those Ds to listen, JB. Their earplugs don’t come out for anything except the sound of money.


  4. The Mind of a Hack says:

    […] Republicans. He has made it very clear that he is willing to sign a deficit reduction plan that is much more radically tilted toward spending cuts than any in recent history. Republicans are now in the comical position of rejecting their own […]


  5. What Happened… | Jared Bernstein | On the Economy says:

    […] The party may revere Reagan, but they definitely wouldn’t recognize each other if they met at a tax policy conference today.  Nor would the gipper last for long on the R’s side of the deficit-reduction super committee.  Recall from work done by my CBPP colleague Kathy Ruffing that 82% of the savings in the 1984 Deficit Reduction Act came from revenues. […]


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