There’s a sensible way to both stimulate our economy and handle our long-term deficit, and I’m glad to see that it’s steadily gaining support. The gist is stimulus now, deficit-reduction later. The latest to espouse the idea is The New Republic‘s Jonathan Cohn:
…a better approach might be to preserve tax breaks on incomes up to $250,000, and to renew anti-recessionary programs like extended unemployment insurance and a payroll tax holiday, but only on a temporary basis. And rather than setting these measures to expire on a fixed date, Congress could try an idea economist Peter Orszag has floated: Setting these tax cuts to expire when, and only when, the economy had become stronger.
I think everyone agrees that over the long run, our debt is an issue. We can’t afford for our debt to keep increasing at the rate it has since the Bush tax cuts passed in 2001. In the short term, though, it’s not a problem at all. The nation’s credit rating is strong, and interest rates are lower than they have ever been, despite years of fear-mongering over inflation from the right. That’s why we should spend some money now to right the economy, while putting a plan in place to eliminate the deficit once the economy has turned around.
Since the deficit and debt are long-term problems, we should adopt long-term solutions. We should aim for a 10-year budget that eliminates the deficit by the end of the tenth year. That means that for the first few years, we can focus our energies on our most pressing problem: the economy.
In fact, I would suggest a trillion-dollar stimulus to give the economy a true jolt into motion. Yes, this would add another trillion dollars to the national debt, but as one-time spending, it would pose no long-term problem. If we put a budget into place that eliminates the deficit, our debt as a percentage of GDP will quickly shrink, even with a trillion dollars in one-time spending. We can have stimulus now while planning to eliminate the deficit over 10 years.
As Cohn suggests, one way to eliminate the deficit would be restoring the Clinton tax rates for everyone. This would amount to rolling back the Bush legacy and returning to Clinton-era prosperity. After all, the largest causes of our deficit are the Bush tax cuts, the Bush wars, and the Bush recession. Eliminate all of these, and the problem is solved. We can end the first two easily. By taking a long-term approach, we can finally end the recession as well.