Monday, August 1, 2011

Dan Mitchell On The Debt Ceiling Deal

Yes, the threat of taxes being raised is very real.

Politicians last night announced the framework of a deal to increase the debt limit. In addition to authorizing about $900 billion more red ink right away, it would require immediate budget cuts of more than $900 billion, though “immediate” means over 10 years and “budget cuts” means spending still goes up (but not as fast as previously planned).

But that’s the relatively uncontroversial part. The fighting we’re seeing today revolves around a “super-committee” that’s been created to find $1.5 trillion of additional “deficit reduction” over the next 10 years (based on Washington math, of course).
[. . .]
there is a risk of tax hikes, just as I warned last week. Indeed, the five-step scenario I outlined last week needs to be modified because now a tax-hike deal would be “vital” to not only “protect” the nation from alleged default, but also to forestall the “brutal” sequester that might take place in the absence of an agreement.

Please read the entire thing.

By the way, Dan Mitchell is a Senior Fellow at the Cato Institute, so he understands how Keynesian economics (dosn't) work better than the economists who studied Keynes.

This is from about two years ago but it's still timeless.

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