Thursday, April 5, 2012

Interpreting GOP Budget Talk

Here's why understanding the GOP war on budgeting is necessary if you want to understand what Republicans are saying.

At NRO, James Capretta says:

[T]he real source of today’s deficits and debt, and the source of our national insolvency if it is not addressed soon, is runaway entitlement spending. Taxes have gone up and down over the past four decades, but have always hovered around 18 percent of GDP. Meanwhile, back in 1972, spending on the three largest entitlement programs — Social Security, Medicare, and Medicaid — was just 4.4 percent of GDP. Today, spending on those three programs is just over 10 percent of GDP. That’s a 6 percentage point jump above what it was 40 years ago — an increase that is more than the size of the entire Defense Department today. Worse, spending on the “big three” is headed toward 16 percent of GDP in 2035, according to the Congressional Budget Office (CBO). If that were allowed to happen, there would be virtually no room left in the budget for anything else, assuming the historical rate of federal revenue collection.
And what does the president propose to do about this problem? Exactly nothing.
His plan for deficit reduction can be summed up briefly: tax hikes and defense cuts.
Jonathan Chait looks at those last two sentences and just can't understand them:
I have inserted no ellipses here. Capretta first accuses Obama of proposing “exactly nothing,” and then — in the very next sentence! — accuses him of proposing to raise taxes and cut defense spending. That’s not “exactly nothing.” It’s not even sort of nothing. It’s something. Now, it doesn’t fit Capretta’s preferred answer, which is to reduce social spending. But it is clearly true that increasing taxes and cutting defense spending frees up more budgetary room to maintain social spending.
Now, on the one hand, Capretta could accurately accuse Chait of missing the context by omitting the previous paragraph (which is why I include it in full). Capretta is saying specifically only that Obama is doing nothing about "runaway entitlement spending." Deficit reduction by other means -- raising taxes and cutting defense spending -- is irrelevant to that point.

Which is true. Well, it's true that a fair reading of Capretta's point requires the previous paragraph; it's of course not true that Obama has done nothing about entitlement spending, what with ACA and all.

But it also gives away the game. Capretta isn't defining the problem as the federal budget deficit; he's defining it as the growth of entitlement spending. The only solution to that problem is to spend less on entitlement programs.

The claim that Obama has no plan to cut the "deficit" depends entirely on a definition of deficit as "stuff we don't like." And not the difference between government outlays and revenues. If you use the right idea of "deficit," and only if you use that definition, then what they're saying makes perfect sense.

(I need to note somewhere here, so I'll just tuck it into a parenthetical at the bottom, that many believe that increased health care spending isn't primarily a federal budget problem, but an overall US economic problem; if you shift the costs from the government to health care consumers, you get rid of the federal budget deficit but have an equally large economic problem. On the other hand, some argue that increased spending on health care is actually just fine for a rich, technically advanced nation; it's not inherently a bad thing to spend a nation's wealth on health, although that formulation doesn't account for higher spending without better health outcomes).

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