This Center on Budget and Policy Priorities report on the deficit is pretty depressing. In particular, they point out that even though substantial deficit reduction has been achieved in the past, we need to do more than has ever been done before:
Reducing the deficit to 3 percent of GDP by no later than 2019 (and preferably earlier) will require actions substantially larger than the biggest deficit-reduction efforts of the past — the Tax Equity and Fiscal Responsibility Act of 1982, the reconciliation acts that followed the “budget summits” between the Administration and congressional leaders in 1987 and 1990, and the reconciliation act of 1993. The largest of these trimmed deficits by about 2 percent of GDP. Over the 2013-2019 period, we will need savings about one-and-a-half to two times as large.
Congress could take initial action in coming months by keeping the estate tax at its 2009 parameters and letting the 2001 and 2003 tax cuts expire for upper-income households, as President Obama proposed in his first budget. Those two policies would shave roughly half a percentage point of GDP from future deficits.
Depressingly, congress seems likely to not really go this far on the tax side, leaving us with an even bigger hole.
I also think we should take it as a bad sign that Gideon Rachman has a piece in the Financial Times taking the view that a spot of national bankruptcy could do wonders for America. When people stop dreaming up clever ways to avoid insolvency and start dreaming up reasons why a fiscal meltdown might be desirable, I think we’re in real trouble.
Nor is his argument very convincing. He observes that democracies that have a near-death experience with bankruptcy are usually in much better shape a few years down the road. That’s true, but that’s just a way of saying that if a country hits rock better conditions will soon improve. Best of all is to avoid hitting bottom!