Thursday, February 13, 2003

Varian on Taxes

Hal Varian is a good economist, and I recommend "Information Rules" which he co-wrote with Shapiro. My buddy SC points to this NY Times Op-Ed where Varian says:
A recent study by the economists Alan J. Auerbach, William G. Gale, Peter R. Orszag and Samara R. Potter, "Budget Blues: The Fiscal Outlook and Options for Reform," lays out the facts (emlab.berkeley.edu/users/auerbach)...[and concludes] that current patterns of spending and revenue are just not sustainable. Large future tax increases or drastic spending cuts are virtually inevitable.

...After 2012, the retirement fund surpluses shrink and eventually become deficits. According to the economists' projections, the spending on Social Security, Medicare and Medicaid will grow from 9 percent of G.D.P. in 2001 to 21 percent by 2075. "These three programs," the economists say, "would ultimately absorb a larger share of G.D.P. than does all of the federal government today."

...What will happen if nothing is done? If deficits continue to accumulate, the temptation to print money to pay our debts will become almost irresistible. Inflation is all too tempting as an "easy" way to avoid the political pain associated with tax increases or budget cuts.
Inflation, btw, is a tax on savings.

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