Jim Pethokoukis offers a wonderful example of CBO 10-year projection failure: in 2002, the CBO projected that debt would be 7.4% of GDP by 2012. The actual figure: closer to 74%.
Did a lot of unexpected things happen between 2002 and 2012? Of course they did. They always do. This is precisely why you should never regard 10-year budget forecasts as “facts.” It’s why I apply what I call Crank’s First Law: government budget and financial forecasts are always, always wrong.
Should Republicans trade tax hikes for spending cuts? Much of the debate over the current fiscal standoff centers around discussions of “ratios”: Republicans will agree to X dollars of tax hikes, Democrats will agree to Y dollars of spending cuts, and so forth.
Much of this discussion is based on numbers that are misleading or worse, because Washington doesn’t calculate taxes and spending the same way. A tax hike will raise real, immediate costs on real taxpayers, whether or not it actually raises any more revenue. The targets of a tax hike are citizens, who do not have a choice whether to obey. By contrast, a “spending cut” may simply involve altering future projections of the rate of increase of spending, and thus agreements to cut spending rarely actually result in less spending. And the targets of such spending cuts are future Congresses, who can disregard them at will; they’re not binding.
The only real equivalents to tax hikes are (1) complete elimination of federal spending programs or (2) changes in the eligibility criteria or benefits formulas for entitlement programs. There are fair arguments about the best GOP strategy in managing the tax debate, but if a negotiated agreement is to be reached that will require Republican votes to pass, Republicans should not even consider agreeing to trade tax hikes in exchange for anything less.
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