I’ve been debating the fiscal deal all day—just had a rousing conversation on the Larry Kudlow show, arguing with Jimmy Pethokoukis and Larry about the characteristics and implications of the deal. As my readers know, I judge it as an incomplete step mostly in the right direction, but whether we’re able to continue in that direction depends wholly on the resolution of forthcoming challenges, most notably, the debt ceiling.
One problem here is that people are throwing around all kinds of numbers and talking points that are pretty untethered to reality. In one debate today, Maya McGuiness and others were going on about major entitlement “reform”—i.e., cuts, Jimmy P and Larry were all wound up about the fact that there were hardly any spending cuts in the deal (Larry had a slide that had the ratio of tax increases to spending cuts at 41/1! I point out the up until yesterday, the cuts to revenue ratio was $1.5 trillion/0—and yes, I know that’s not a real ratio).
We need to organize our thinking here. For example, let’s start by agreeing on a fiscal goal and the most common one—one I would hope we could all agree on—is to stabilize the debt/GDP ratio within the 10-year budget window. That is, just get to a point where the debt is growing less quickly than the GDP (I think Larry and Jimmy agreed with this, so that’s good).
As my CBPP colleague Bob Greenstein points out, this deal doesn’t get you there. It’s $1.2 trillion short. The President explicitly would like to achieve that deficit reduction through balancing spending cuts with further revenue increases. Republicans, predictably, want out of the tax-increasing business.
So, we’ll be having lots of arguments that will be sure to generate lots of posts. But achieving $1.2 trillion in deficit reduction does not require major entitlement cuts or cosmic tax reform. It can be achieved through a combination of higher tax revenues, likely through closing some of the tax expenditures that were left in place in this last round, and spending cuts like those that were on the table earlier in the cliff debate (some of which I discuss here).
And I agree with Kudlow (and Krugman…weird pair, right?) too: faster growth would also of course help achieve a stable fiscal path, not to mention get some peeps back to work.
The point is that we have a clear fiscal target and all comers are welcome to suggest specifics on how to hit it. I just humbly request that your ideas are balanced between new revenues and spending cuts and that you avoid the hysteria of massive hand waving about massive changes that must be made lest we turn to dust… or a failed state…or Greece, etc.