It's that whole 'big picture' thing....Thanks for posting this, as it's what I've been prone to advocate for the last 6 years.These facts explain why the tax pledge that virtually all Republicans blindly support is ultimately self-defeating. Refusing to raise revenue automatically leads to higher spending for interest on the debt. However, Republicans routinely deny this, asserting that capping revenue at some arbitrary percentage of G.D.P. will somehow or other force huge cuts in spending that will prevent deficits from rising to inconceivable levels. Implicitly, they believe in a nonsensical theory called starve-the-beast that is totally refuted by the budgetary experience of the last 20 years.
The frightening thing is that the projections for interest on the debt assume that interest rates don’t rise in the near term and don’t rise at all even as the federal debt rises to 200 percent of G.D.P. in 2037 and to 885 percent of G.D.P. in 2082. The G.A.O. assumes that short-term rates on Treasury securities average 1.3 percent through 2017 and 3.7 percent in the long run, and rates on 10-year Treasuries will average 3.4 percent in the short-run and 5 percent in the long run.
These assumptions cannot be taken at face value. Federal borrowing of the magnitude projected would undoubtedly raise inflation and real interest rates, both of which would raise market interest rates far above those projected, sharply raising federal spending for interest. Rising inflation would also force the Federal Reserve to tighten monetary policy, which would also raise real rates.
In short, the G.A.O. projections are a best-case situation insofar as interest on the debt is concerned. It could get a lot worse very quickly, and at that point it is almost a certainty that taxes will rise far more than would be necessary to stabilize the debt-to-G.D.P. ratio and hence interest on the debt. Therefore, the absolutist position against raising revenue is essentially penny-wise and pound-foolish.
It’s too bad that misplaced fears about the fiscal cliff have taken off the table the option of simply letting all the automatic tax increases and spending cuts go into effect. While this would indeed reduce short-run growth, the Congressional Budget Office says the reduction in projected deficits would actually raise growth in the medium- and long-term (see pages 24-25 of the report).