Tax and spend

Greg Mankiw’s comments are ricocheting around the blogosphere.

I have a plan to reduce the budget deficit.  The essence of the plan is the federal government writing me a check for $1 billion.  The plan will be financed by $3 billion of tax increases.  According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit.  Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit.  But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

Healthcare reform, its advocates tell us, is fiscal reform.  The healthcare reform bill passed last year increased government spending to cover the uninsured, but it also reduced the budget deficit by increasing various taxes as well.  Because of this bill, the advocates say, the federal government is on a sounder fiscal footing.  Repealing it, they say, would make the budget deficit worse.

So, by that logic, giving me $1 billion is fiscal reform as well.  To be honest, I don’t really need the money.  But if I can help promote long-term fiscal sustainability, I am ready to do my part.

Since everyone is commenting, I might as well too. On one thing I agree completely with Mankiw: some bills have components that increase and decrease the deficit. I’m not so bothered by that since it is the net effect that matters. Nevertheless, one such bill passed the House yesterday, the “Repealing the Job-Killing Health Care Law Act.” It would cut some cost savings and some revenue increases while cutting some spending.

Sounder fiscal footing could be had by a partial repeal that retained the cost savings and revenue increases. Of course some might argue that throws the baby out with the bathwater (or fails to throw the baby out, or whatever the right twist on that metaphor is). But you can’t argue that from a “fiscal footing” perspective alone. We all care about things other than the budget or we’d be making different arguments. And, to be fair, many–though not all–have.

In slightly different words, that’s what I said yesterday.

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