Edward Lazear, chairman of the President's Council of Economic Advisers under president George W. Bush and a current Stanford professor, has written a piece for the Wall Street Journal advocating a solution to our current fiscal woes that does not involve tax increases.
His solution, in two steps: 1) cut spending increases implemented since 2008; and 2) constrain future spending by implementing cost constraints indexed to inflation.
We look at some of his numbers:
• If President Obama meets his target of cutting the deficit to 4% of GDP by 2013, debt to GDP will still be at 70%, nearly double its Bush administration levels.
• If spending was held just below 20% — as it was during the Clinton and Bush administrations – tax hikes, in Lazear’s view, would be unnecessary.
• Lazear recommends congress should increase spending by the last three year’s inflation rate minus 1%, in any year where the ratio of government spending to GDP tops 18%, which is the 30-year average of tax revenues.
• Such a plan could return The U.S. to 2008 ratios by fiscal 2014, with an additional 3-4 years until a balanced budget was achieved.
• In the event of an emergency, a provision would be included so that congress could suspend the spending constraint rule for one year if it achieved a 60% supermajority.
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