Debating tax cuts and the deficit

Economics editor Chris Farrell

TEXT OF INTERVIEW

BILL RADKE: Politicians have been fighting about what to do with the Bush-era tax cuts. President Obama's recently departed budget director, Peter Orszag, told CNN last week that letting all the tax cuts expire this year would bring the U.S. within striking distance of balancing the budget. That got the attention of Marketplace's Economics Editor Chris Farrell. Good morning, Chris.

CHRIS FARRELL: Good morning, Bill.

RADKE: Letting taxes rise would seriously whack the deficit. What does that tell you?

FARRELL: It tells me that a lot of conservatives who want the tax cuts left alone, well, they may not be that serious about really cutting the deficit. But here's the more important point because I don't want to go into cynical take. You know, I thought -- and a lot of the commentary has been -- that boy, this budget deficit is intractable, this is going to take years to solve, it's going to be difficult politics. But then there's this real, simple, swift way to essentially balance the budget: let taxes rise.

RADKE: Well, Chris, to make the conservative argument, isn't it that you want to starve the beast? You keep taxes down and you force politicians to find ways to cut spending.

FARRELL: There's a supply sider, Bruce Bartlett -- who was in the Reagan Treasury, he's now a conservative commentator -- and he has called that idea of starve the beast, the most pernicious fiscal doctrine in history. You know, what it became is a justification for cutting taxes.

RADKE: And what about the argument that now is not the time?

FARRELL: All right. You're right. But I have a solution: Every member of Congress that has proclaimed that the U.S. could be the next Greece because of the deficit, pledge to extend the tax cuts one more year. Then if you want to talk about tax reform, entitlement reform, that's fine, go ahead, go do it. But let's show the world that we're serious about fiscal sanity and we've figured out how to do it -- simply, quickly. Oh by the way, Bill?

RADKE: Yeah?

FARRELL: Not going to happen. But it's a good litmus test.

RADKE: Sanity that won't happen. That's Marketplace's economic editor Chris Farrrell.

FARRELL: Maybe that's a good definition of economics.

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