Tuesday, February 9, 2010

Fareed Zakaria: Budget fixes are simple -- and unthinkable

Fareed makes some reasonable points:

If he were to cut spending at this point, the economy would quite likely go into a second recession, a double-dip, and then frankly everything collapses. If you don't have growth, you have no prospect of getting out of this budgetary situation. ... But he must in a year begin really to address the serious issues that make up the budget crisis that we have.

The most significant one is health care costs. ... Obama's health care plan, while it has some cost control measures, is mostly about expansion and adding to the costs. ... There has to be a much, much more serious focus on costs.

The second is a number of sacred cows in the federal budget which are very large but which frankly make no sense. We have a $250 billion a year hole in the federal budget because employers are given a tax deduction for health care plans. This is actually bad for health care, because it is one of the factors that contributes to these out of control costs, because it's an invitation to have inflation in the system.

Fareed has a solid plan for bringing down the deficit, but he is disingenuous about the macro economic effects of doing so. He understands and says that cutting spending would hurt the economy in the short term, but in the next breath he proposes tax increases, which would have almost the same net effect.

Not that I disagree with his proposal, because a little short term pain is going to be necessary. But he should be honest about it, or the pundits and partisans will tear it apart for raising taxes.

[via Raven]

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