Tuesday, October 11, 2011

Bathtubs for Beginners

James Kwak goes after David Brooks' latest, Bathtubs for Beginners. "If you look at the Tax Foundation report, it says that those two policies would increase taxes by $306 billion. The Tax Foundation doesn’t even say in what year that would happen, but they link to a series that ends in 2009, so let’s say they’re using 2009 data. In 2009, GDP was $14.1 trillion, so $306 billion is 2.2 percent of GDP.

Now let’s apply that to the CBO baseline. Right now, my updated CBO-style baseline shows national debt at 61 percent of GDP in 2021 and 59 percent in 2035. If you add 2.2 percent of GDP to revenues in every year beginning in 2012, those numbers fall to 44 percent in 2021 and 5 percent in 2035 (a reduction in the debt of 54 percentage points, or 92 percent). In other words, the entire long-term deficit problem goes away.

If you prefer to use the CBO alternative scenario (in which, among other things, the Bush tax cuts are made permanent), my updated alternative scenario shows the debt at 80 percent of GDP in 2021 and 142 percent in 2035. Increase revenues by 2.2 percent of GDP and those number become 63 percent and 91 percent. These are big, big differences—a lot more than “1 percent” and “2 percent” and “nibbling meekly around the edges.”

Saying these tax changes would reduce the deficit by 3 percent (that’s 1 percent + 2 percent, by the way) is the kind of factual mistake that requires a correction—but that would gut the rest of the column, which is based on the idea that major tax increases on the rich wouldn’t matter. It doesn’t surprise me that David Brooks can’t do basic math, but doesn’t he have a fact checker? Or at least an editor?"

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