The Budget Arithmetic Test: Repairing Federal Fiscal Policy,” Economic Policy Institute

The current federal budget debate is sharply focused on implausible solutions that are bound to fail. The unsustainable deficits that are now anticipated cannot be repaired by the popular rhetori-cal fallback on cuts in domestic discretionary spending. A truly effective budget policy will re-quire difficult political compromises amidst a tangle of political “third rails”: abandoning the un-necessary goal of a balanced budget, cutting funds for defense and entitlements, and increasing taxes. The public debate on budget reform should also recognize that the supply-side virtues of tax cuts and deficit reduction have been overblown, while the benefits of public investment for eco-nomic and social welfare have been routinely and blindly undervalued. Policies that cannot succeed at putting the U.S. budget in order—for example, reductions in domestic discretionary spending—will be rendered increasingly irrelevant by the inexorable and unsustainable growth in health care entitlement costs, an issue that will come to the forefront of the budget debate with the retirement of the baby boom generation. Ill-conceived cuts in domestic spending and unnecessary obstacles to public investment will only exacerbate problems, not solve them. Policies aimed at accomplishing tax increases, defense cuts, and slower growth in entitle-ment spending must be put on the table