Create jobs, lower the deficit

CREATE JOBS, LOWER THE DEFICIT…. For all the talk about tax rates and government spending, with deficit fears hanging over head, there’s one sure-fire way to improve the nation’s finances. As David Leonhardt explained today, it’s a largely-overlooked approach called “economic growth.”

We look back on the late 1990s as a rare time when the federal government ran budget surpluses. We tend to forget that those surpluses came as a surprise to almost everybody.

As late as 1998, the Congressional Budget Office was predicting a deficit for 1999. In fact, Washington ran its biggest surplus in five decades.

What happened? Above all, economic growth. And that may be a big part of the answer to our current problems.

Yes, the government became more fiscally conservative in the 1990s. Both President George H. W. Bush (who doesn’t get enough credit) and President Bill Clinton, working with Congress, raised taxes to attack the 1980s deficits.

But those tax increases were the second most important reason for the surpluses that followed. The most important was the fact that the economy grew more rapidly than expected. The faster growth pushed up incomes and caused more tax revenue to flow into the Treasury.

Given the size of the current deficit, growth almost certainly won’t be enough to balance the budget anytime soon, even if the economy grows much faster than expected, which seems unlikely. But growth was responsible for reducing the deficit over the last year, and the more things improved, the lower the deficit will be — without slashing spending.

Indeed, perhaps the most astounding aspect of Republican rhetoric on the economy lately is how contradictory it is. On the one hand, a top GOP goal is, at least in theory, deficit reduction. On the other hand, those same Republicans want more tax cuts (which makes the deficit worse), and spending cuts that would likely slow the economy (which also makes the deficit worse).

Digby added, “Why Democrats haven’t been saying ‘jobs=deficit reduction’ on a loop, I don’t know. I guess they figure it’s just too complicated to explain that when people aren’t working they aren’t paying taxes so the government doesn’t have as much money.”

I’m guessing the same thing. It’s easier to talk about “belt tightening” during a downturn than it is to explain how economic growth leads to revenues leads to deficit reduction.

But I’d sure like to see Dems talk up this idea anyway. It’s not that complicated; the 1990s offer a recent model of success; and no one outside the far-right really wants those brutal spending cuts anyway.