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Friday, September 29, 2006
It's the Deficit, Stupid
Chris Edwards of the Cato Institute testified at a Senate Finance Hearing on Tuesday.
Essentially, Edwards argued that the federal government has a "spending problem." Increased spending, he said, is almost entirely responsible for the last 5 years of high deficits. Therefore, we ought to get to the root of the problem and cut back on spending to get the deficit under contol. This is the same tack that Senate Budget Committee Chairman Judd Gregg (R-NH) has taken while advocating for drastic budget cuts.
There are a lot of things wrong with this line of reasoning, not the least of which is the canard that spending increases alone have caused the deficit. The Center on Budget and Policy Priorities has shown that the cost of the 2001 and 2003 tax cuts is three times the cost of all legislated spending increases. And revenues as a percentage of GDP are far lower than historical averages, suggesting that it's revenues that are out of whack, not spending.
Anyway, the most important thing that's wrong with this argument is that it doesn't matter what policies created the deficit. We don't have a "revenue" or a "spending" problem. What we really have is a deficit problem.
Mr. Edwards points out, correctly, that spending has gone up a great deal since 2001. Yet much of that spending increase has been for defense and homeland security. By Edwards's logic, if defense spending increases created a bigger deficit, we must cut back on defense spending. But nobody wants to do that just yet (including Mr. Edwards), because defense spending is a national priority.
The point is, the factors that caused the deficit tell us nothing about how to address it. We budget according to what our priorities are. We should decide how to address the budget deficit in similar fashion.
Posted by Matt Lewis
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