Pat Lang proposes a trio of measures for balancing the budget that at least to me sound eminently reasonable:
- Return marginal tax rates to the levels that they were prior to 2001.
- Repeal Medicare Part D.
- End our nation-building exercises in Iraq and Afghanistan.
and bemoans the Congress’s inability to arrive at an agreeement:
Collectively, these three things would bring the budget into balance. Can we do these things? Evidently not. The theological wars under way in the Congress seem to prevent such solutions.
While I agree with the general thrust of Pat’s suggestions, I think he would be bitterly disappointed by what his proposals would accomplish. The deficit this year is expected to be something like $1.4 trillion. Even the most generous estimates of what would be realized by those three measures alone fall far short of $1.4 trillion. Would those three measures alone over time cause the budget to be brought into balance? I think they’d barely cover the interest on the debt that we’d preparing to incur.
I’ll consider the effects of increasing marginal tax rates in a post later today. Medicare spending is rising at the rate of 9% per year; the entirety of Part D outlays barely covers the deficit in Medicare overall let alone for a future in which Medicare spending continues to grow. According to the CBO, the total Part D outlays will only be about $30 billion this year. Eliminating Medicare Part D is not nearly enough.
How much closer will we get by withdrawing our troops from Iraq and Afghanistan? We’re spending about $200 billion a year there now so eliminating those expenses is not nearly enough.
It should be clear to everybody now that the CBO’s estimates were hopelessly unrealistic. Goldman-Sachs just downgraded their estimates and further downgrades are likely to come. We won’t be seeing 4% growth any time soon (it wasn’t that long ago that the Fed was predicting 4% growth for 2012). The implication of this is that revenues are likely to be even lower than anticipated, that we will be borrowing more, and that interest payments stretching into the indefinite future will be higher and, possibly, much higher.
Interest payments on the debt are expected to be just under $500 billion this year alone.
Repeal Medicare Part D.
That would create a fun one-time hit on some corporate balance sheets, as well as potential ongoing risk, too. That’s neither a bug nor a feature, just a thing.