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Doing nothing is still an option

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Ezra has pointed out before that there’s an uncomplicated way to fix America’s medium-term debt woes. All Congress has to do is … nothing. At the end of 2012, the Bush tax cuts would automatically lapse. As inflation rose, the alternative minimum tax would hit more and more Americans. A whole slew of business tax breaks would expire. And the Sustainable Growth Rate formula in Medicare would trigger large automatic cuts to payments to doctors. Here’s a new chart from Michael Linden:

That doesn’t mean the do-nothing plan is the best way to curb the debt, but it’s certainly an option. Note that even if Congress steps in and tweaks the doctor pay rate (so as to prevent doctors from fleeing Medicare en masse), and decides to index the alternative minimum tax to inflation, the federal debt still drops down to manageable levels. As Linden notes, “Even throwing in the extension of all the expiring business tax breaks would still yield a stable debt-to-GDP ratio at about 70 percent.”

Of course, this only covers the medium-term deficit. Over the long run, health care costs will keep growing and the debt will start rising again, but that’s a somewhat separate problem.

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