NCPA - National Center for Policy Analysis

GUNS, BUTTER AND RETIRED BOOMERS

January 11, 2006

In a recent debate between Glenn Hubbard, dean of the Colombia University Business School, and Robert Reich, professor of social and economic policy at Brandeis University, the nature and possible solutions of the current budget deficit were discussed.

According to Hubbard:

  • More restraint is needed to ensure that domestic spending growth doesn't continue, and tax reform is needed to codify pro-growth policies that will raise enough revenue to fund the federal government.
  • The problem is the long-run fiscal picture; the recent Medicare expansion, without substantial reform of the system, was an exercise in unwise fiscal policy and added tax cuts have had little effect on economic growth.
  • On the spending side, a strong case can be made for continued basic research support and support for individualized training programs, but a significant tax increase is unwise.
  • Moreover, the Bush administration is missing an important opportunity to talk with the American people about the enormous looming entitlement liabilities and the large implicit flow deficits that go with them.

According to Reich:

  • The growth from tax cuts on spending and investment is far less than the growth from well-targeted public investments in education, health care, infrastructure and basic research and development.
  • The United States is hardly suffering from a scarcity of financial capital, and there is no reason to extend tax cuts on capital gains and dividends; therefore, spending should be cut in the areas of subsidies and tax breaks specifically directed to specific companies and industries.
  • Instead, more should be spent on early-childhood education, since studies show that these expenditures provide large social returns.
  • But health care can't be forgotten; the federal employee's health insurance system should be made broadly accessible and affordable to all small businesses wishing to enroll their employees.

Source: R. Glenn Hubbard and Robert B. Reich, "Guns, Butter and Retired Boomers: How Do We Pay for It All," Wall Street Journal, January 9, 2006.

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