From the comments: what does the fiscal endgame look like?
Slocum writes:
Nonetheless it is naive to think spending cuts can do the job alone, and insisting on no tax hikes drives us faster along the path of fiscal ruin.
This is a political, not economic judgement on Tyler's part — that a majority won't accept the necessary cuts. But I think it's much less politically feasible to imagine enacting VAT (which, in the past, has been Tyler's preferred approach). That's an idea that practically demagogues itself (A EUROPEAN-style Tax! A regressive, HIDDEN tax on EVERYTHING you buy! A tax that will hit the savings of RETIREES the hardest –people who 'worked hard and played by the rules' who were taxed when they earned and saved the money and are now going to be hit by a REGRESSIVE, EUROPEAN, HIDDEN TAX on EVERYTHING when they try to spend the money).
Republicans are so married to 'no new taxes' and Democrats to 'higher taxes only for the rich', that a VAT (or any other new broad-based tax) seems out of the question. So I can much more easily imagine spending cuts eventually getting bipartisan approval with only nominal tax increases included in the bargain.
A few points:
1. A VAT has never been my preferred outcome, rather I warn that it may be necessary if we do not act soon.
2. Balancing the budget within five to ten years with spending cuts alone would be difficult but by no means impossible. I am all for doing that, but a) it won't happen as stated, and b) it still won't balance the budget over a ten to twenty year time frame.
3. The path toward long-run fiscal balance involves recalibrating Medicare, Medicaid, and Social Security to lower rates of indexation, reimbursement, benefit increase, and so on. We need to start that process now. It cannot be done overnight or even over a few years' time. It takes a long time for those gains to come in, cumulatively. No one is going to vote for a "thirty percent cut to Medicare, today," although they might vote for changes in rates, which over time would amount to large reductions.
4. The time for a Grand Fiscal Bargain is now. If we don't do it fairly soon, we won't get spending under control at all. Furthermore the number and percentage of elderly voters will only increase, which will make spending cuts more difficult as time passes.
5. Let's say a proposal for long-run balance were presented, with $3 in spending cuts for every $1 in tax hikes. That is still a good deal for the anti-tax, anti-spending conservative. Rejecting such a deal means we will end up with something closer to $3 in tax hikes for every $1 in spending cuts. (And no, I don't know what is the "break even" point for a good bargain in this regard.)
6. Bill Niskanen's research shows that by taking tax hikes off the table we simply encourage governments to spend more. Spending then looks like a free lunch.
7. Making it a priority to "avoid any tax hike today" is the same kind of short-run view which brings us to fiscal catastrophe in the longer run. In the medium-run, much less the long run, this attitude will lead to higher taxes. However much it may masquerade as a low-tax attitude, it is in reality a high-tax attitude. Unintended consequences is a fundamental economic idea and it is very much operating here.
8. If I called on President Obama to push for a budget deal, and I cite CAP in support, it was not to criticize the Democrats, or Obama (as DeLong and Krugman mysteriously suggested), but rather because I see him as by far the most influential player in this process.
In short, I am asking for the true fiscal conservatives to step up to the plate, and bring about lower taxes in the long run, rather than simply "playing team on the tax issue" in the short run. Time is not on our side, and if we think it is we are fooling only ourselves.