Tough Choices, Opportunity, or Both?

Research Report

Tough Choices, Opportunity, or Both?

December 6, 2004

Abstract

For the last several years, Congress has been on a spending spree unlike any in the nation’s history — a turnaround of about 7 percent of gross domestic product in going from surplus to deficit. In addition to size, what made this spree unique was that tax cuts, defense increases, large automatic growth in entitlement spending, new health entitlements, and discretionary spending increases all were pursued at the same time, even while revenue projections were dropping after the collapse of a late-1990s bubble stock market. In the mid-1970s, The Wall Street Journal editorial page started pushing for what it called a ‘‘two Santa Claus’’ policy. The complaint was that the Democrats got to be Santa Claus with expenditures, then the Republicans reluctantly had to increase taxes. Better it argued, would be for the Republicans to be Santa Claus, too, on the tax side of the ledger — creating, it argued, a better economy and a viable political position for the Republicans. But no one then predicted the world to which we have evolved — two-Santa-Clauses-at-thesame- time. When both show up together — when taxes are cut while expenditures are increased — it’s especially hard to hold onto any belief that somehow the budget will remain balanced in the long run.

To reuse content from Urban Institute, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.