Why Would You Want To Balance the Budget in 10 Years?

Moneybox
A blog about business and economics.
Jan. 23 2013 11:38 AM

Why Would You Want To Balance the Budget in 10 Years?

Paul Ryan, R-Wis., arrives for the presidential inauguration
Paul Ryan, R-Wis., arrives for the presidential inaugurationon the U.S. Capitol, Jan. 21, 2013, in Washington, D.C.

Photo by Win McNamee/AFP/Getty Images.

Lots of buzz on the Internet today about the House Republican pledge to write a plan to balance the bduget in 10 years without raising taxes. Most of the talk has focused on skepticism that this is mathematically workable. But I hope someone gets the chance to ask them a simpler question—why?

It's generally better to think about debt and deficit problems on the tax side than the spending side. When it comes to spending, really nobody cares about debt or deficits. What happens is people disagree about whether a given aircraft carrier or highway project or benefit to low-income parents or farm subsidy is worthwhile. Taxes are another matter. So this is the question for John Boehner and Paul Ryan whenever they do unveil their balanced-budget plan: Why not make taxes lower instead of balancing the budget? The budget will, presumably, cut spending down to a level that conservatives think is appropriate. Say that sums up to 18 percent of GDP. Well if you're spending 18 percent of GDP and 18 percent of GDP is the right amount to spend, then why is it better to raise 18 percent of GDP in taxes rather than raise 16 percent and borrow the rest?

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Is it because a 2 percent of GDP budget deficit would be inflationary? Is it because an inflation-targeting central bank faced with a 2 percent of GDP budget deficit would be forced to peg short-term interest rates at a high level? What's the problem, exactly, that the budget balancing solves once we've stipulated that spending has been cut to an appropriate level?

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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