Deficit Disinformation

Apparently Charles Krugman’s brand of evidence-less economics has a new adherent, as we see in this new column from the Brookings Institution. While everything inside is technically true, that doesn’t prevent the string of non-sequitors that follow.

First, it starts out with a straw man, the idea that Congress wants to “cut taxes and raise spending.” That’s actually not true; Republicans want to cut taxes and Democrats want to raise spending (and taxes). It’s also misleading to characterize extending tax rates that have been in effect for twelve years as a tax cut.

Then we get to current law. It is true that if Congress takes no action the deficit will shrink quite a bit next year. But only if one entirely ignores some basic political facts:

1) Every year Congress passes a temporary addition to Medicare reimbursement (around 25%). Even after this, Medicare pays much less than private insurers. If you add such a drastic cut, doctors are simply going to stop accepting Medicare patients. There’s a reason sharply partisan Congresses manage to pass this every year. The idea that somehow this won’t (or shouldn’t) be passed is almost as absurd as the fact that the health care bill failed to even address it.

2) Most of the new cuts were part of the deficit deal agreed upon last year with the idea that they were so terrible both sides would be forced to negotiate. Most people can agree there are cuts to be made, but gutting the defense budget and welfare at the same time are hardly what needs to be done. In any case, these cuts are far from the status quo that is implied by the column.

Once we get past the inconvenient facts, there are some policy prescriptions. First, we are told that we should fix the tax system (a good idea!) but that this fix needs to start from pre-2001 tax rates. It’s unclear why this is the case (if one simply wants higher taxes than we have now, then say so – and explain why). Dramatically increasing tax rates in the middle of a [sluggish] recovery is, at best, a controversial suggestion that deserves more justification.

Then we get to Social Security, where we are greeted with more true yet useless statements. Social Security cannot bankrupt this country; this is a fact. The Social Security Administration is only permitted by law to pay out what it takes in (plus the savings in the Trust Fund, which includes previous receipts). Once the fund runs out, SSA will have to cut payouts. Of course, this skirts around the fact that unless the law is dramatically reformed either Congress will be forced to apportion more funds to Social Security (increasing the deficit) or Social Security payments will be cut. Any guesses as to which one they will pick?

As the column explains, “Eventually, the debt will become so large that lenders will lose faith that the nation will have the will or ability to service the debt.” Another true fact, which is unfortunately lost among a plethora¬†of misinformation, non sequitors, and gross political ignorance.

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