Thursday, May 19, 2011

Deficit and Stimulus

There's a way Republicans could get the spending cuts they want. Couple spending cuts with tax increases and economic stimulus.  It's a win-win-win.
The jobs crisis is vastly more pressing than our debt problems, but it’s also, in two mostly unnoticed ways, interconnected. For one thing, a weak labor market means a high deficit. It means tax revenues come in low and social spending needs to be high. It’s very hard to begin deficit reduction in any serious way before unemployment comes down.Which means that the sooner we get unemployment under control, the sooner sustained deficit reduction can really begin.


But second, and perhaps more importantly for deficit hawks, the jobs crisis is leverage for deficit reduction. A little bit of stimulus could buy you a lot of deficit reduction. Imagine if Republicans offered Democrats a 4:1:1 deal: For every $4 of specific spending cuts over the next 12 years, they’d back $1 of tax increases and $1 of stimulus. A deficit-reduction deal that cut $3 trillion would carry $1 trillion in tax increases — so, $4 trillion in total deficit reduction — and $1 trillion in stimulus. Who’s the liberal who’d say no? And yet, that’s a big deficit reduction package. Among the biggest in our history, actually.

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