After the super committee

Things are much like they were before: the U.S. needs to ensure economic growth in the short term, while developing a path to a long range sustainable budget. During 2011, we have achieved neither, and I see no reason for optimism that legislative action on either front will occur before the 2012 election.

The only way to achieve a long range sustainable budget is for taxes as a percent of GDP to rise over current levels, and spending to decline, also as compared to current levels. The Simpson-Bowles plan proposed achieving balance at 21% of GDP in 2035, which would be the highest level of taxation observed (20.6% in 2000 is previous max), but we routinely spent more than 21% of GDP in the 1970s and 1980s.

If we adopted 21% of GDP as a future target for balancing the budget, we would be saying government spending will be less while the baby boomers are eligible for Medicare and Social Security than it commonly was when they were paying taxes to support these same programs. This will be very hard. Plans seeking balance at lower levels seem implausible.

Now that the Super Committee has not agreed to anything to replace the sequester, the next step toward a long range sustainable budget will either be some clarity from the next election with the knowledge of what the Supreme Court has ruled about the ACA, or some economic calamity that will spur action. The former is possible. The latter is a near certainty, eventually, the question is when and what the crisis looks like?

The only source of optimism I can find is the similarity of the grand bargain deals that include both substantial tax increases and spending cuts (without both, it is not a plan, but a fantasy). If we have to act fast, we really know a great deal about what the last step looks like. We just don’t know what it will take to get us to act.

About Don Taylor
Professor of Public Policy (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute), and Chair of the Academic Council at Duke University . I am one of the founding faculty of the Margolis Center for Health Policy. My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

One Response to After the super committee

  1. David R. says:

    The sticking issue in the deficit reduction committee was taxes. This issue has now been booted into the 2012 election, which may be where it belongs.

    Mr. Romney (c’mon man, Newt Gingrich?) will campaign on keeping the Bush tax cuts, Mr. Obama on letting them expire for the top wage earners. Whoever wins will claim victory for their position, although as we saw in late 2010, just because Mr. Obama wins doesn’t mean he won’t sign off on keeping the Bush rates for the top wage earners.

    If Mr. Romney wins the role of the federal government in economics will dramatically change. Government spending will be reduced, and the burden of health care for the elderly will shift to the elderly. The burden of health care for the poor will shift to the poor, and the providers as Medicaid is “block granted”. Massive cuts will also take place in other government social programs.

    There is simply no other way to maintain fiscal viability and not raise taxes, ahnd Mr. Romney and the Republicans will probably lower taxes. This is what the 2012 election is all about.

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