October 19, 2013
THE HIGH COST OF LOW POLITICS
It was never wise or necessary to cut the deficit while the economy remained weak. The political imperative to do so, driven by Republicans and clumsily adopted by Democrats, has had devastating results. Over the past three years, the depth and pace of federal spending cuts have reduced growth by about 0.7 percentage point, equivalent to over $300 billion in lost output and roughly 2 million fewer jobs than would otherwise have been the case. That so-called fiscal drag has been the single biggest weight on economic growth.
To the extent that deficit reduction is politically unavoidable, Mr. Obama and the Democrats should insist that it come mainly from higher taxes rather than spending cuts. Tax increases on high-income individuals and large corporations are less damaging to the economy than deep spending cuts, and income tax increases to date have affected only a fraction of the top 1 percent of filers, leaving room to raise taxes at the top of the income ladder without harming the economy.
Forcing Republicans to relent for now in their extortionate ways is a tactical victory for Mr. Obama and Congressional Democrats in the long budget war. What’s still needed is a budget that taxes and spends with the aim of boosting the economy so that the majority of Americans will, at long last, begin to benefit from the recovery.