The now-famous moment when GOP presidential candidates all declined a theoretical budget deal of $10 of spending cuts for every $1 of tax increases is supposed to symbolize a Republican Party paralyzed by the dead hand of orthodoxy. And by the diabolical Grover Norquist:
Norquist has spent a quarter century getting American politicians, especially Republicans, to sign a pledge opposing all tax increases. In recent weeks, however, his fight has been getting harder. Former Florida Governor Jeb Bush has been urging Republicans not to take the pledge, arguing that it would rule out even a budget deal with $10 of spending cuts for every $1 of tax increases. The day I visited Norquist’s office, Bush had praised a tax-increasing budget deal — signed by his father, President George Bush — at a Bloomberg View forum. …
Jeb Bush, Graham and other Republicans who favor a deal that cuts spending and raises taxes are naive, in Norquist’s view. President Ronald Reagan, he notes, came to regret a similar deal he made in the 1982 budget because the spending cuts didn’t materialize. The 1990 deal, Norquist further argues, didn’t keep spending from coming in a little higher than the Congressional Budget Office had projected from 1991 to 1995. …
Discussing hypothetical bargains with 10-to-1 spending cuts, in Norquist’s view, is like debating what the best kind of unicorn would be. “Wouldn’t it be nice to have silver-striped unicorns? No one’s offered you 10-to-1!” he says, raising his voice in frustration.
Right. What is the deal? What might that $10 represent?
Is it cuts from some phony baseline so spending keeps going up but not quite as quickly?
Is it $10 in cuts to the military?
Is the elimination of tax breaks that liberals would reclassify as spending? After all, many on the left think tax rates can go much higher and not lose revenue if the system has fewer escape hatches.
Or … does that $10 represent savings from shifting Medicare to a premium support system, freezing nondefense discretionary spending at current levels, and “progressively” indexing Social Security to inflation?
I don’t believe in magic numbers outside of baseball. I don’t know that revenues as a share of GDP needs to be 17%-19% but no higher despite anything else happening in the economy. Here’s a snippet from a chat between AEI’s Nick Schulz and Alan Viard on this very issue:
NS: Do you have a view as to the proper level of tax revenue (and by extension, the proper level of federal spending) as a percentage of GDP?
AV: Under current policies, medical cost increases and population aging will trigger a steep increase in federal spending on Medicare, Medicaid, and Social Security. If those policies are not changed, federal tax revenue will ultimately need to soar far above its recent average of 18 to 19 percent of GDP in order to cover these costs. To promote economic growth and limit the size of government, we must make policy changes to significantly restrain those programs’ spending growth. Even with spending restraint, though, I expect that revenue will need to rise over the upcoming decades to 21 percent of GDP or so. Such a revenue increase will be much less harmful if we raise the revenue from the X tax rather than from the inefficient income tax system.
If we can keep spending and revenue around 21% of GDP over the long-run — and have a pro-growth tax code and regulation — I would certainly take that over what’s likely behind door #2.
Would President Obama take that deal? Apparently not, since that’s what is in Simpson-Bowles. Liberal economists generally think having spending and revenue at 21% is way, way too low.
For instance, a long-term budget plan from the liberal Economic Policy Institute – former home of former Obama White House economic adviser Jared Bernstein — would put spending at 28% of GDP in 2035 and tax revenue at 24%.
Now the CBO estimates that this year, spending will be about 23% of GDP and tax revenue at 16%.
So EPI would raise revenue by 50% from today and spending by 20% in order to get a budget still running an annual deficit of 4% of GDP and a debt/GDP load of 82%.
This doesn’t sound to me like they would offer a budget deal of $10 of spending cuts for every $1 of tax increases. Maybe the other way around.