Tax and Personal Finance Tips

Is Doing Nothing a Fix for the Deficit?

From TaxVox, Howard Gleckman asks the question, "What would happen if Congress and the White House just closed up shop for a couple of years and let fiscal policy run on autopilot?" That's actually a valid question, because that's essentially what will happen if Congress’ budget super committee fails and Washington is still locked in political gridlock at the end of next year. Based on the Congressional Budget Office chart below, short- and medium-term deficits would be greatly reduced, but the U.S. would likely have another recession.



Current law means if all the Bush/Obama tax cuts expire at the end of 2012, the Alternative Minimum Tax would hit 20 million households, Medicare cuts physician payments by one-third and all discretionary spending would be cut by 5%. That would reduce the deficit to 1.6% of GDP in 2014.

This strategy has two problems. First, it won't fix long-term fiscal problems without getting medical costs under control. Second, the austerity measures would likely trigger another recession, which ultimately would negatively affect deficits even more.

Reducing discretionary spending alone probably won't fix the problem Making significant but gradual changes in health care costs, short-term stimulus and long-term deficit reduction is needed.

View Original Article