penbeast0 wrote:I agree with Hands here about the fiscal cliff being the best chance for anything resembling a real choice on spending. Hands wants a middle class tax cut and infrastructure spending; I want to get closer to balancing the budget. Where we agree is that neither of us think that the Republicans have any real interest in lowering the federal debt; where we disagree is that he seems to think only the Republicans are the villians here. I think neither party is serious about debt reduction as soon as it turns to cutting ANY real federal spending at more than the margin (Dems) or cutting ANY real taxes other than at the margin (Reps) although both will posture about cutting the other party's sacred cows knowing that they won't have to put their money where their mouth is. My biggest fear is that the fiscal cliff negotiations will succeed in a typical Washington deal which combines accounting gimmicks and putting off true costs onto future generations in which case both parties will pat themselves on the back and go right back to the same tactics that got us into this mess.
I want both. One leads to the other. Actually, if the economy could swing it, I would forgo the middle income tax cuts at the levels they are now if it meant cutting the deficit enough that confidence was restored. Getting the top brackets back in line helps but getting the middle brackets up more would have a larger impact in bringing down the annual deficit. A short recession now would be a small price to pay for getting budget more in balance without cutting government spending on investment/infrastructure. When we come out of other other side of the recession in 9 months, things would be looking a lot better. Housing should be fully stabilized, blue collar and manufacturing would be a lot stronger and tax rev as a percentage of GDP would be back in line as well.
Come mid term, Rs would be slamming the Dems for causing a recession and unemployment numbers that still don't look much better then they are now, but the economy would be getting stronger in a much more healthy way that is sustainable, the annual debt would be lower then today and the debt to GDP would be dropping.
Unraveling that 25 year equity bubble, unpaid for wars, run away defense spending and taxes cuts that weren't paid for isn't so easy that it can be done in just one recession cycle over 3 years. The shorter term goal should be a healthy economy and about a 400B annual deficit. If we can get back there, we will be in range to grow the economy at 3-4% and make the adjustment needed to get the debt to GDP heading down.
Then they can do some spending cuts and let the middle income tax cuts go all the way back to Clinton levels to get the budget fully in balance or even into surplus again. Then, like post WWII, you just keep at it for 20 years and eventually you are back down to 50% debt to GDP.
Then you just hope people of that time actually remember the mess we were in and how we got there so they don't let their votes get purchased by some fool running for president talking about how he is going to lower taxes without offsets in spending because.. tax cuts pay for themselves.
In a dream world, eventually they get debt to GDP down to about 25% and they start to phase in some middle income tax cuts that have offsets such that the debt to GDP doesn't increase. Thats how you do real tax cuts. You get your house in order first and you make sure you can afford them longer term.