20101201 gasoline

J. Bradford DeLong

Don始t Give Free Gasoline to the Budget Arsonists!: A Plea to Howard Gleckman J. Bradford DeLong U.C. Berkeley December 1, 2010

Howard Gleckman is perplexed.

He says that he does not know which budget baseline to use. Is it best to use the "current law" baseline--what would happen if congress went home right now, or at least stuck to PAYGO by not passing things that increase the deficit--in evaluating the budget impact of laws and policies? Or is it best to use the current "policy baseline," according to which congress passes laws to keep tax rates what they are and spending programs on their current growth trajectories? Should extending the Bush tax cuts be thought of as something that increases the deficit because it changes current law in a way that makes the deficit bigger? Or should extending the Bush tax cuts be thought of as a nothingburger for the deficit because it would, after all, only continue current policy?

Here is what I believe is the best way to think about it: The people now arguing for use of the "current policy" baseline and for treating extension of the Bush tax cuts as a nothingburger--as something that would not make our long-term fiscal situation worse because we would not, after all, be doing anything we are not doing now--were pretty

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J. Bradford DeLong

much all of them around a decade ago at the start of the Bush administration. What were they all saying then? Back then they were saying that the proposed Bush tax cuts did not blow a huge long-run multigenerational hole in America's budget. Hence, they said, the Bush tax cuts should not require the special super-majority in the Senate required for policies that would blow a huge long-run multi-generational hole in America's budget. It was perfectly kosher, they said, to pass them through the Reconciliation process. And they did.

Why didn't the tax cuts blow a huge long-run multi-generational hole in America's budget? They did not, today's advocates of the "current policy" baseline said then, because the tax cuts were explicitly only temporary: they would expire at the end of 2010. How could something that expired in 2010 increase the deficit out beyond 2010?

That is what they are saying then.

Now, of course, they are saying that extending the Bush tax cuts does not blow a huge long-run multi-generational hole in America's budget. Why not? Because it was understood all along that the tax cuts would be extended when they expired.

Thus if we now adopt the "current policy" baseline we will have performed a neat trick. We will have reduced taxes permanently without that permanent reduction ever having had any effect on the long-run deficit. They did not increase the long run deficit they were passed in 2001 because they were explicitly temporary. They will not increase the longrun deficit should they be extended now because they are part of current policy.

If you simply take a little step back, the big point is that the long-run deficit cost of these policies should enter the political-economic-legislative calculus at some point. The cost did not enter the political-economiclegislative calculus in 2001. Therefore it should enter it now. Therefore Howard should use the "current law" baseline to evaluate them now.

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J. Bradford DeLong

If he does not--if Howard Gleckman should adopt the "current policy" baseline and say that extending the Bush tax cuts does not transform the long-run fiscal picture in a doubleplusungood way--then he is giving free gasoline to the budget arsonists.

December 1, 2010: 610 words

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