Friday, January 21, 2011

Mankiw's Genius Budget Cutting Plan (That will really work)...

... in the same way that healthcare reform will cut budget deficits.  Mankiw explains:

I have a plan to reduce the budget deficit. The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases. According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

Healthcare reform, its advocates tell us, is fiscal reform. The healthcare reform bill passed last year increased government spending to cover the uninsured, but it also reduced the budget deficit by increasing various taxes as well. Because of this bill, the advocates say, the federal government is on a sounder fiscal footing. Repealing it, they say, would make the budget deficit worse.
Actually, Mankiw is a bit generous in assuming that the cost of healthcare will come in as budgeted, but his overall point is well made.

1 comment:

  1. I don't usually agree with Mankiw, but that was awesome.