Could the instability in the EU with the failure of Greece spread to the US? Rep. Paul Ryan believes it to be inevitable if we stay on our current path. The credibility of sovereign debt has diminished considerably over the last two years of financial crises, and without a rational path to retire our debt and curtail our spending, we will be on the way to becoming Europe. Challenged again on Robert Reich’s statement that taxes will have to get raised, Ryan objects, saying that the problem in the US is not a revenue crisis but out-of-control spending. The Right Scoop has the video:
The econ blog E21 concurs, amplifying Ryan’s warning on the devastating effects tax hikes would have on the already-bruised economy. They also confirm Ryan’s diagnosis on spending:
Here, let’s simply discuss the ostensibly equitable posture that tax increases and spending restraint should occupy similar places on the negotiating table. At first glance, this would seem to establish a reasonable symmetry between negotiating positions.
But that picture would be very wrong. The merest glance at the numbers reveals a very different reality. First, let’s look at the long-term budget picture under current law as seen by the Congressional Budget Office (CBO).
A quick glance at this graph reveals that the long-term problem is not one of inadequate revenues. If we don’t change the law so as to reduce tax growth, Americans will be taxed as they have never been taxed before.
Here’s the chart, which does indeed make the problem rather obvious:
Even without the debt service payments, we’re escalating spending in relation to GDP. We’ll also be pulling an ever-increasing percentage of GDP out of the economy and into the hands of Washington even without tax hikes, thanks primarily to a still-unreformed AMT that will start biting the middle class in the next few years. We don’t need more taxes on top of that; we need a lower cost of governing. And if we don’t get it from the so-called “deficit commission,” we’ll need to get it from a much different Congress than we have at the moment.