Toomey's Budget: Too Good to Be True

I am mightily impressed by Sen. Toomey’s budget proposal. It promises to achieve a budget surplus and, most importantly, it does that almost painlessly, through a mighty combination of tax cuts and spending increases! Why has nobody thought of that before?!

Yes, the proposal actually includes huge cuts in non-defense discretionary spending and some unspecified moderate defense cuts (largely based on a hope that world peace will be finally achieved by 2018). But given that there are no cuts in Social Security and Medicare, the growth in those programs is bound to offset (sooner or later) all the proposed cuts. In fact, 2012 may be the only year in Toomey’s budget in which the spending does not increase. Long-term fiscal health cannot be restored without a serious entitlement reform. Sen. Toomey just kicks the can down the road and justifies that by predicting that president Obama will not agree to any meaningful reform. Fair enough. Politics is the art of the possible and all that. But then again the budget proposal somehow assumes that the president will agree to the complete repeal of his hard-won healthcare reform!

The economic growth assumptions seem to be quite rosy (although slightly less rosy – to the tune of 0.2% per year – than in the president’s own wildly optimistic deficit reduction plan). The proposal assumes that tax cuts will have a huge stimulating effect while an abrupt elimination of discretionary spending amounting to 2% of the GDP in a still weak economy starting less than five months from now will have absolutely no detrimental effect on economic growth. If all this sounds too good to be true, it probably is.

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