The Surprisingly Easy Medium-Term Budget Fix

Another thing to say about Doug Elmendorf’s dislike of the disconnect “between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services” is that the extent of the country’s medium-term fiscal problems is really not obvious to non-specialists. You can tell this (via Ezra Klein) from this hot new chart from none other than Doug Elmendorf:

This chart is telling us that under current law (the solid lines) the country’s medium-term fiscal trajectory looks not so bad. Those are deficits, but they’re not unsustainably large, and it looks like relatively small tweaks could turn the situation around. The dashed lines, however, represent a “current policy” scenario in which we assume that some of the Bush tax cuts will be extended and also that the AMT threshold will continue to be pushed up.


Those are reasonable assumptions, since both such measures are supported by the leadership of the less anti-tax political party. Elmendorf, in other words, isn’t wrong to worry about that. But I think it’s pretty understandable that this nuance is lost on the man in the street. The problem, in the medium-term, isn’t actually so much that we’re driving toward the edge of the cliff. The problem is that based on past behavior, congress seems overwhelmingly likely to steer us in that direction. But they could always, as a medium-term solution, not do that. Sticking with current law would buy substantial fiscal breathing room. It’s absurd for politicians to be simultaneously engaged in highly public deficit hand-wringing and not talking about the fact that maybe we can’t afford these “predictable” deviations from current law.