February 13, 2012

President's Budget Still Focusing on Short-Term Instead of Long-Term

Jason J. Fichtner

Former Senior Research Fellow

Arnold Kling

Senior Affiliated Scholar

Bruce Yandle

Distinguished Adjunct Fellow

David M. Primo

Senior Affiliated Scholar
Summary

Mercatus scholars comment on the president's FY2012 budget proposal.

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Mercatus scholars comment on the president's FY2012 budget proposal: 

With a presidential election looming, expect the budget to put old fashioned politics ahead of good policy necessary to rein in the national debt, grow the economy, and create jobs. The U.S. has an infamously dense and complicated tax code that is in dire need of simplification. Temporary tax provisions and tax policy proposals that continue to pick winners and losers only postpone the tough choices that need to be made. The very fact that our tax system is such a mess creates great economic uncertainty that causes individuals and businesses to hunker down in a state of paralysis and put off spending, hiring new employees and making investment decisions. –Jason Fichtner, Mercatus Center Senior Scholar

Under both Democratic and Republican presidents, we have gotten into the habit of looking at budgets that are dishonest and irresponsible. These budgets contain commitments, particular for the longer term, that the government cannot possibly keep. Currently, budget discussions are grounded in fantasy. As a result, I see the country moving ever closer to another financial crisis, because it would take only a small shift in investor sentiment to produce a panic in the bond market. What we need is to establish a norm under which a budget must satisfy long-term fiscal balance and must be scored as sustainable before they can be submitted to Congress. Arnold Kling, Mercatus Center Affiliated Senior Scholar

The U.S. manufacturing economy is growing stronger by the month.  But its strength comes from using less labor per unit of output, not more. In each recent recession, manufacturing firms have closed older plants and modernized others. Manufacturing employment has fallen, even while output was increasing. Instead of just encouraging the use of more labor, President Obama should encourage growth of a stronger U.S. economy, which would include manufacturing.  Reducing corporate income taxes for all firms, not just manufacturers, and eliminating capital gains taxes would do this. Bruce Yandle, Mercatus Center Senior Scholar

Many critics of entitlement reform say that now is not the time for these kinds of changes, and that the first priority needs to be economic recovery.  However, what many observers miss is that a focus on our long-term problems will help us solve our short-run problems. If entitlements are restructured to be sustainable for the long run, markets will react positively to the increased likelihood that the U.S. government will be able to pay its bills. David Primo, Mercatus Center Affiliated Senior Scholar