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Politics

Under-taxed America

Robert J. Samuelson on

Democrats are little better. They advocate more entitlement spending, despite CBO's estimate of $10 trillion in deficits under existing policies over the next decade.

The unspoken assumption that justifies big and continuous deficits is that -- rhetoric to the contrary -- they pose no serious danger to the economy. We can run deficits forever without suffering ill effects.

Can we?

Excessive federal borrowing poses three theoretical dangers. First, it could raise interest rates and "crowd out" the private investment essential for higher living standards. Second, it could trigger a financial panic, if private investors would no longer buy Treasury securities except at exceptionally high interest rates. And finally, a large national debt could make it harder for the government to borrow heavily during a true crisis.

But none of these imagined calamities has yet occurred. Perhaps they never will. There is a theory that suggests just that. Global investors want so-called "safe" financial assets, it's said, and U.S. Treasury securities are deemed "safe." This global demand for Treasuries could sustain budget deficits (which produce more Treasuries) for years.

But this is a very dangerous gamble to make, because if it's lost, the consequences could be catastrophic. At some point, the demand for "safe assets" may weaken. Or too many large deficits may make safe assets seem less safe. A responsible society would not test the limits of what's doable and what isn't.

But that's not us. By now, it must be obvious: We are no longer responsible. The urgent need is to plug the huge gap between government spending and tax revenues. Naturally, we aren't doing that.

(c) 2017, The Washington Post Writers Group


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