Phil Hauck's TEC Blog

Saturday, January 8, 2011

'The Right Way to Balance the Budget,' WSJ, 12/29/10

The numbers are striking. Our research shows that the typical successful consolidation allocates 38% of the spending cuts to entitlements and 25% to reductions in (payroll). The rest comes from such areas as subsidies, infrastructure and defense.
Why is reducing entitlements and government pay so important? One explanation is that lower social transfers spur people to work and save. Reducing the government workforce shifts resources to the more productive private sector.
...While tax hikes slow revenue growth, policies that credibly reduce government spending in the long run boost economic growth by more than their simple effects on deficits might imply. Any attempt to address the federal government's budget shortfall that relies on less than 85% spending cuts runs too large a risk of failure. The experience of so many other countries shows that it's critical for the U.S. to get this right.

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