Here is an article I just published in The Fiscal Times, prompted in part by Leonard Burman's work,  on the staggering size and automatic growth of "tax expenditures" -- tax breaks, for us non-budget mavens.

     Everybody knows that tax breaks -- on everthing from mortgage interest to green-energy projects -- permeate American life and often amount to backdoor government spending.  Republicans love to promote tax cuts, because they seem to strike a blow against Big Government.    Democrats love them because many tax breaks are a way to fund favored social programs.

It's always odd to get into a simultaneous fight with someone on the left and someone apparently on the right, but I have to respond to two commenters to my post on Greg Mankiw's proposal for what Republicans could bargain for if they actually wanted to engage on the issue of deficit reduction.

   JakeCollins  thinks it's appalling that I would support a value-added tax or VAT, one of Mankiw's proposed trades,  because it "cuts taxes on the rich and raises them on the middle-class and the poor."    Why, he asks, would liberals favor that?

      I'm not saying liberals necessarily do favor a VAT.  I just said I am a comparatively liberal person, and I think it's a good idea.   Note, by the way, that the most rabid opponent of a VAT is the Wall Street Journal editorial page, which is righteously right-wing.

    But the real point is this: don't be dogmatic.

Greg Mankiw at Harvard has a really smart post, pointed out by Brooks, on what Republicans could be bargaining for if they really wanted to engage in the deficit commission.

     Mankiw, who was chairman of President Bush's Council of Economic Advisers, acknowledges that tax increases would have to be part of the deal -- a view shared by almost every budget analyst in the world but denied by Republican leaders with flat-earth fervor.    

     But Mankiw then outlines what conservatives should demand in exchange if they were willing to compromise on taxes.  And it's a solid list of ideas:

     I agree that Eugene Steuerle's "Fiscal Democracy Index offers a chilling new perspective on the declining state of federal finances.  Like Andrew Samwick, I too hadn't realized that 2009 was the first year in which all Federal revenues were consumed by promises made in the past -- entitlement programs and interest on the debt. All discretionary programs, the ones that Congress has to vote to fund each year, were paid with borrowed money.

    Here are some other factoids that I only recently learned, courtesy of Fitch Ratings (see attachment at bottom of this post), which warned earlier this month that the United States' AAA rating could be at risk if don't make some sort of fiscal headway in the next three to five years.

     Point One:  We often hear that the US government debt load is  lower as a share of GDP than those of many other large, wealthy nations, including Japan, Germany, the UK and France. But a more apples-to-apples comparison, which combines federal, state and local government borrowing, suggests that the US is in worse shape than most other AAA-rated countries.

This Associated Press story is creating a lot of unnecessary buzz in Washington.  In fact, the coverage may well be a total overreaction to a complete nonstory.

As reported by the AP, Office of Management and Budget Director Peter Orzag has told federal agencies and departments to prepare two possible fiscal 2011 budgets: one that holds spending flat and another that cuts spending by 5 percent.  That led the AP to say that the White House is planning a "budget freeze."

Here's the back story the AP didn't include.

1.  Almost all administrations ask agencies and departments to put together multiple budgets based on alternative scenarios like a 5 percent increase, a 5 percent decrease, and no growth.  So the fact that the Obama White House has asked for multiple options not only is no big deal and definitely not news.

For the record, I've known Norm Ornstein for years, he made the initial contact for me at Roll Call and so is at least partially responsible for my column being published, and my Beautiful and Talented Wife (The BTW) was a student of his at Catholic University.

However, I choose to think that his comment in the fifth graph below is totally objective.

To Escape Economic Purgatory, Feds Must Spend More Money

Oct. 28, 2009
By Norman Ornstein
Roll Call Contributing Writer   

When I first heard about the plan to give every senior on Social Security $250 because there will be no cost-of-living adjustment, I laughed until it hurt. It hurt a lot.

My column from today's Roll Call has already generated "a few" comments.  All responses welcome.

2009 Deficit Is a Triumph of Fiscal Policy

Oct. 20, 2009

Despite the headlines and the page-one, right-hand column, above-the-fold stories in the New York Times and Washington Post on Saturday, I’m not at all upset about the 2009 federal budget deficit.

You shouldn’t be either.

When you do well in grad school economics, you adhere to first principles, dig deep into well behaved data, and come up with some new result, but only one which reinforces current theory, particularly that of your adviser.

When you attempt public policy, you rarely find out until too long after that what you thought would work didn't work so well.  Most professors and most policymakers prefer not to acknowledge that.

The signs are now unmistakeable: a second fiscal stimulus bill and the increase in the deficit and government borrowing that it will cause is now more likely than not.

This is a huge change from as recent as a week ago.  At that point the Bush position that the first stimulus should be allowed to go into effect before a second was enacted was commonly being accepted because a veto was considered to be certain.

But that was before the Bear Sterns deal was announced.

The mood in Congress changed almost immediately.  Bailing out a bank gave reprsentatives and senators permission to talk seriously about providing similar treatment for their constituents.  So all of a sudden, the homeowner bailout using taxpayer funds that wasn't happening seven days ago is now very much alive and well and living in Washington.