Friday, June 17, 2011

Budget deal on the way; or, zen and the art of deficit reduction

Lots of signs coming out of DC that a budget deal is in the process of being cut, or will be cut soon. I can't post links right now* so just go read Ezra Klein's blog for the details. But the gist of it seems to be some sort of entitlement reform, spending cuts, and a collection of spending caps in exchange for closing tax loopholes.

Okay. Deep breaths.

Part of me wants to panic: spending cuts are dumb, dumb, dumb. Spending cuts hurt the economy in the short term - that's not remotely controversial. And right now, the economy is weak. Making it weaker -- or god forbid, tipping it back into a second recession -- means reduced revenues and then even bigger deficits and even more reason for the right to demand even more spending cuts and so on and so forth. It would also probably cement Republican control of Congress for the time being, meaning more tax cuts and spending cuts, meaning weaker revenues and a weaker economy and a larger deficit and so forth and so on.

The refusal to consider new taxes is also worrisome, because how much money can actually be raised by closing tax loopholes? The less that can be raised, the bigger the spending cuts have to be.

On the other hand! As it turns out, hundreds of billions actually can be raises by closing loopholes. Entitlement reform can also save quite a lot of money, and is not necessarily a bad thing if structured correctly. And closing tax loopholes is good for the economy even independently of its effect on the deficit, because it squeezes out inefficient rent-seeking behavior by industries and corporations.

(Spending caps are a bad idea, but it's impossible to say how bad until you know where the cap is set.)

And there's also history. Every time Obama cuts a deal with Republicans, the Republicans win the message and he wins the substance. The tax cut deal enraged the left but was a huge win for Obama. The budget deal contained much smaller cuts than anyone initially realized, and they were structured in just about the least objectionable way possible. And when it comes to a lot of these cuts, Democrats are plain better negotiators than Republicans, because Democrats actually care about making the social safety net sustainable and, frankly, have most of the policy expertise in their corner. And so I'm resisting the temptation to run around and freak out until someone has numbers they can run through a computer.

But still. It's hard.

I'm writing this from my phone at Netroots Nation (#bravenewworld #nowimoneofthem) so I can't link, or, tragically, italicize.

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