Closing the Deficit Requires an Open Mind, Not an Open Wallet

The typically staid pages of the Washington Post Business Section were graced this morning with subtle humor from the virtual pen of the ever-sober, oft sagacious Steven Pearlstein. In a piece titled “Keeping an open mind on solutions to the budget deficit”, Pearlstein neatly lays out the argument one typically hears from open-minded liberals today. What makes the argument humorous is that they really believe they can pull this off.

The essential of the argument is simple enough. Using Pearlstein’s numbers, federal spending is running at about 26 percent of Gross Domestic Product (GDP). Revenues tend to run at about 19 percent, and we can sustain a deficit of about 2 percent of GDP. That leaves a gap of 5 percent of our economy, a big number. Pearlstein then suggests what he regards as an eminently fair and reasonable proposition – a 50-50 split between tax hikes and spending reductions; 2 and a half percent of GDP each in tax hikes and spending cuts.

What’s not to like? Consider that until very recently, federal spending had hovered around 20 percent of GDP. After complaining about deficits during the campaign once in office Obama and friends then launched federal spending toward 26 percent. So Pearlstein is suggesting a compromise whereby spending that has soared by 6 percentage points of GDP should now be cut back by 2 and a half points. So, from a pre-Obama perspective, the Pearlstein deal is to raise spending by more than three percent of our economy and pay for this by raising taxes by 2 percentage points. Steve, you’re such a kidder.

Pearlstein argues that “political reality dictates that it is impossible to close that [5 percent] gap entirely with spending cuts.” Oh, really? Voters determine what political reality is, not Washington, as Senator Bob Bennett (R-UT) and Congressman Allan Mollahan (D-WV) recently discovered to their dismay. So here’s an open-minded solution from the taxpayers’ perspective. Get spending back down to 20 percent, and then we’ll talk.