May 29, 2012

WE ALL KNOW WHERE WE'RE HEADED...:

A Budget Grand Bargain Will Follow the Election: Early 2013 will offer the best political environment for critical fiscal reform. (ROBERT RUBIN, 5/29/12, WSJ)

[T]his time could possibly be different, thanks to five factors combining to create the best political environment for real fiscal action in a long time. The risks of inaction are apparent and will put pressure on all policy makers: Sequestration and expiring tax cuts will have severe consequences and could cost the country 3.5%-4% of gross domestic product in 2013. A political punt would be a striking manifestation of our inability to govern ourselves and could heighten uncertainty and lack of confidence about future economic policy. That could have serious adverse impact on our economy and on markets. And the months right after a presidential election are--since they're the furthest from the next federal elections--the lowest-pressure time in our political system.

Most important, there is no choice available to Congress that does not involve significant changes to taxes and spending that members of each party will oppose. Unlike any situation I remember, Congress cannot simply maintain the status quo by failing to act.

Doing nothing means tax increases and massive cuts in defense and nondefense spending. Kicking the can down the road requires compromising with the other party on taxes and spending. And biting the bullet on the hard choices will necessitate compromises and action as well. The compromises required for constructive action are substantially harder than the compromises necessary to punt, but taking the easy way out requires actions that come with their own set of political costs. And, the longer you avoid tough choices, the deeper the hole gets, the greater the resulting crisis is and the harsher the necessary measures necessary to reestablish confidence and recover.

What's more, most policy analysts agree on the basic framework for establishing sound fiscal conditions, though the specifics would require intense negotiation.

The overarching goal should be a 10-to-12 year track of deficit reduction that stabilizes the ratio of debt to GDP and then begins to bring it down. Within that context, we must create budgetary room for vigorous public investment in education, basic research infrastructure and other areas that are critical for competitiveness and broad increases in standards of living.

Reducing the deficit, increasing public investment, and preserving government's ability to conduct critical activities will require constraints on spending in all areas, including serious entitlement reform, substantial additional revenues, and difficult judgments on priorities and trade-offs.

The UR just blew his chance to be the one who got credit for it. 

Posted by at May 29, 2012 5:54 AM
  

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