Feb 15, 2012 at 7:46 am
In the interest of efficiency, I’m going to start assigning numbers to frequently made points around here. One that’s particularly germane today is point 3-stroke-b: temporary spending is not what drives the budget deficit.
The WaPo tell the story: Congressional negotiators, unable to agree on an offset to pay for extending the payroll tax break for the rest of this year agreed to add the $100 billion cost to the deficit.
I know–that doesn’t sound good. But you can’t let big numbers knock you around. You have to look at the actual contribution to the deficit as a share of GDP over time. I made a graph of this in an earlier blog that I can’t find right now and I’m in a rush. What it shows, however, is that by 2014, extending the payroll cut along with unemployment benefits–about $160 billion together–adds 0.02% to the deficit as a share of GDP. That’s two basis points or two-one-hundredths of a percent. IE, small (the reason it doesn’t go to zero is because of interest costs).
It’s not the temporary stuff that hurts you when it comes to the longer term deficit. It’s the stuff that just won’t go away, like the Bush tax cuts. Or, to put it more simply: 3/b.
Thank you for joining the conversation. Comments are limited to 1,500 characters and are subject to approval and moderation. We reserve the right to remove comments that: