海角大神

About a month ago, the made what I thought鈥揳nd still think鈥搃s a brilliant analogy between budget baselines and weight loss goals at an I liked it so much that I quoted from the transcript in my very next Tax Notes column (), and I鈥檇 like to re-quote it here (emphasis added):

In terms of an example, think about this the following way: Suppose you鈥檝e been eating badly the last, let鈥檚 say, 10 years, and you鈥檝e been gaining a lot of weight and you want to lose weight and you want to lose 15 pounds. Well, we won鈥檛 go with 1.5 trillion pounds. You want to lose 15 pounds. The question is, compared to what?

Now, the way we鈥檇 usually think about it is, well, compared to where I am right now I want to lose 15 pounds. There鈥檚 another way to think about it, though, which is to say, well, I鈥檝e been eating badly for 10 years. If I continue to eat badly the next 10 years I鈥檓 going to gain 45 more pounds, so I鈥檓 going to lose 15 pounds relative to that increase of 45 pounds that I鈥檓 going to do over the next decade.

Now, nobody that鈥檚 serious about losing weight builds in a 45-pound weight increase and then says, 鈥淚鈥檓 going to lose 15 pounds relative to that.鈥� But using one of the baselines, the policy-extended one, as the standard for a deficit reduction goal would be the equivalent of increasing the deficit by $4.5 trillion and then saying, 鈥淚鈥檓 going to cut it by $1.5 trillion [in other words, increase it by $3 trillion relative to current law].鈥�

In that same column of mine, called 鈥淭hree Ways to the Current-Law Revenue Baseline,鈥� I explained why I wanted the super committee to adopt a revenue goal of achieving a level of revenues consistent with the current-law baseline. First, there are lots of ways to get there, and all aren鈥檛 too bad or so hard鈥搕he easiest option being the 鈥渄o nothing鈥� approach where Congress simply (goes home(?) and) avoids passing any new tax legislation鈥搃ncluding any extension of any part of the Bush tax cuts, which have always been deficit financed. Second, committing to those levels of revenues would insure getting our deficits down to clearly economically sustainable levels (not just borderline sustainable or 鈥渘ot quite鈥� sustainable) over the next 10 to 20 years, while we鈥檒l probably still be waiting for entitlement reform to either get done or materialize. I pointed out that the super committee did not have to decide right now (or figure out how Congress and the Administration would actually agree to) the specific tax policy that would produce those current-law revenue levels. All they would have to do is demand that the Bush tax cuts comply with strict pay-as-you-go rules going forward, such that any extension of any part of them would no longer be deficit financed.

In Bill鈥檚 lingo, they鈥檇 have to commit to not 鈥渆ating鈥� any more of those very fattening deficit-financed tax cuts. In Bill鈥檚 lingo, that鈥檚 the way they鈥檇 really commit to changing their bad habits and thus not gain any more weight鈥�not one pound of what would otherwise be a 45-pound weight increase.

Well, yesterday the President unveiled , one that has been characterized as qualifying as a 鈥済o big鈥� approach鈥揵y the Administration, of course, but also by none other than , when he says (emphasis added):

The debt-limit deal signed in August had two parts. OMB estimates that the first part will reduce spending by $1.2 trillion (this may seem confusing, because the commonly-used figure for this part was $900 billion originally).

In combination with the debt-limit deal, then, the new proposals would (a) pay for the stimulus package the President proposed and (b) still reduce 10-year deficits by $4.4 trillion. Changes of this size constitute 鈥済oing big鈥� in current budget parlance and should be applauded.

In contrast, the Joint Select Committee needs to come up with 鈥渏ust鈥� $1.5 trillion in deficit reduction to avoid the automatic second-round cuts. The president is asking Congress to go well beyond that and make a much more significant dent in the fiscal problem now.

Well, by , the plan鈥檚 revenue-gaining proposals raise nearly $1.6 trillion over ten years. But that鈥檚 only after the Administration first cuts revenues by $3.9 trillion to adjust to their 鈥減olicy-extended鈥� baseline that assumes that under 鈥渂usiness as usual鈥� the entirety of the Bush(/Obama) tax cuts and Alternative Minimum Tax relief would be extended and deficit financed. On net, this means that relative to current law (the purview of legislators, by the way), the President鈥檚 revenue proposals for 鈥渄eficit reduction鈥溾�搚ou know, his more 鈥渂alanced鈥� approach for deficit reduction because it supposedly includes higher revenue鈥搘ould actually reduce revenues and increase deficits by $2.3 trillion ($3.9 trillion minus $1.6 trillion, from tables S-1 and S-2 in the Administration鈥檚 report) over ten years.

So, relating this to Bill Gale鈥檚 original analogy of someone who wants to change his ways and avoid what would otherwise be a 45-pound weight gain from his 鈥渆ating as usual鈥� diet that鈥檚 very heavy on deficit-financed tax cuts, the President鈥檚 new 鈥渄iet plan鈥� would indeed avoid the 45-pound weight gain, but would still lead to a 26.5-pound weight gain鈥揳s $2.3 trillion in deficit-financed tax cuts is 59 percent (still the bulk of) of the $3.9 trillion worth of all of the possible deficit-financed tax cuts, and 59 percent of 45 pounds is 26.5 pounds.

Now, I want to give credit where credit is due, and certainly the President鈥檚 plan is:

• far better than the Republican approach of suggesting even more deficit-financed tax cuts coupled with draconian (I would call 鈥渉eartless鈥�) cuts in spending; and
• considerably better than the 鈥渂usiness as usual鈥� policy-extended baseline鈥搕hat worst-case scenario where all of the expiring tax cuts are all extended and deficit financed.

But I think we should all take note that for all the work and hard choices the Obama Administration put into this plan, it still is 鈥渨orse鈥濃�搒till falls short of鈥揹eficit reduction under the 鈥淒o Nothing鈥� approach where all the expiring tax cuts just actually expire.

If I actually had a personal goal of avoiding a 45-pound weight gain and was told I could achieve that by doing nothing versus going on a 鈥渢ough鈥� and specific alternative diet that would lead to 鈥渙nly鈥� a 26.5-pound gain, I don鈥檛 think I鈥檇 be that persuaded to sign up for that diet.

And if I instead was told that I could just commit to the equivalent of 鈥渄oing nothing鈥� in terms of my weight gain, that instead of starving myself completely off my favorite bad-habits food (letting my access to that particular food disappear as scheduled, analogous to letting the tax cuts expire) I could keep some of that favorite yummy-but-fattening food in my diet, but add enough additional exercise to offset the caloric impact?鈥�.Well, then sticking to the 鈥渄o nothing鈥� weight-gain goal (and avoiding the full 45 additional pounds) wouldn鈥檛 seem so awful and austere after all.

(I eat a LOT of sweets by the way, but I also do a lot of yoga.)

So, Bill Gale and I have been having a little bit of a personal disagreement over whether I鈥檓 being too much a 鈥淒ebbie (or Diane) Downer鈥� on this. I mean, can鈥檛 I emphasize my usual 鈥済lass is half full鈥� perspective? Well, in this case, no. I鈥檝e always thought that the current-law revenue baseline is the right goal for tax policy going forward, and I especially think that鈥檚 true now. If the President wanted to 鈥済o big鈥� with an approach that鈥檚 a big contrast to the Republican approach, he should have 鈥済one bigger鈥� with revenues. Falling short of 鈥渄oing nothing鈥� is far from good enough. And I say this not because I鈥檓 a pessimist, but because I鈥檓 an optimist and truly believe we can do much better than this.