How Much Deficit Reduction Do We Want?

Reducing the deficit by raising taxes on most citizens or making huge spending cuts in government budgets will make the economic situation worse if the Fiscal Cliff is not avoided.

As we seem to be hearing relentlessly every day, the Fiscal Cliff is upon us and we may go over it in a few days if there are no agreements among our representatives in Washington. The fiscal cliff is about taxes increasing, or not, and spending decreasing,or not.

The Congressional Budget Office projects that if these two things occur as scheduled on January 1, 2013, the economy will shrink by about .5% and unemployment rates will increase to 9.1%. This is not good.

Deficits are running about $1 trillion annually right now. Even if no agreements are reached and we go over the Fiscal Cliff, the deficit for 2013 is expected to be about $600 billion less than that in 2012.     This is due to the fact that many across-the-board spending freezes on government programs are already in place.

Doing only one or the other (let taxes increase or let spending reductions kick in) is not a good answer either.  All sides agree that spending needs to be reduced but not necessarily where those cuts should take place.  Reducing spending is one way to reduce deficits but not the only way.   Raising taxes is another way to bring more revenue into government coffers which can also reduce the deficit.   

Both spending cuts and raising taxes pull money out of the economy at a time when it is showing signs of revival.   The more we do of either or both, the greater the potential adverse impact on the economy at a time when it is showing some recovery.  So how much deficit reduction is really good for us right now?Some flexibility from our representatives seems in order right now. 

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

James Adnaraf December 28, 2012 at 03:32 PM
The currency and stock markets most hate uncertainty. They also hate the "kick the can down the road" approach. The short term is not the real worry, it is the year after year deficits, exploding the debt, and related interest costs, and the inflationary potential due to the devalued dollar currency. Obama appointed the Simpson-Bowles commission to recommend ways to get this deficit spending going in the right direction and then he ignored the majority recommendations. The Republicans opposed the recommendations. In the Tip O'Neill-Reagan days, they appointed commissions to get political cover to do things that were painful but necessary (cases in point- 1982 Social Security Commission, and various military base closing commissions). Then, the Democrats and Republicans reluctantly accepted the commissions' recommendations. It is a long term matter, as opposed to the short term issues that worry the markets. And, if you can do the math, you realize that even if Obama gets his way on increasing rates back to the Clinton era, on those over $250K, it will only cover about 15% of the problem (maximum). Foreign aid is barely a blip on the spending spectrum, so the people who think that is a source of savings, are out of touch with reality. Barack Obama and the Republicans get an F on the debt and deficit.


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