10 great points from David Leonhardt’s ‘Here’s the Deal’

February 11, 2013

David Leonhardt's "Here's the Deal" is one of the calmest, clearest looks you'll find at the deficit -- both what it is and how to fix it. It's also only 15,000 words, and costs less than two dollars!

Not good enough for you? Here are 10 of my highlights from the book. And I had a lot more than just these. But you'll need to buy "Here's the Deal" to get them.

1. "In the simplest terms, Republicans have won the debate on taxes, and Democrats have won the debate on benefits. We, the voters, have chosen the winner of each. In exchange, we have a federal government facing enormous deficits in coming decades."

2. "Eventually, the country will have to confront the deficit we have, rather than the deficit we imagine. The one we imagine is a deficit caused by waste, fraud, abuse, foreign aid, oil-industry subsidies and vague out-of-control spending. The one we have is caused by the world’s highest health costs (by far), the world’s largest military (by far), a Social Security program built when most people died by age 70—and, to pay for it all, the lowest tax rates in decades."

3. "When the top marginal rate was 70 percent or higher, as it was from 1940 to 1980, tax cuts really could make a big difference to economic growth. The tax cuts signed by President John F. Kennedy and by President Reagan both appear to have lifted growth somewhat. But when the top marginal rate is hovering around 35 percent or 40 percent, as it has recently, logic and history both make clear that a tax cut packs much less economic punch."

4. "Perhaps the single most counterproductive deficit-reduction approach the country could adopt would be reducing money for high-return investments. It would save millions now at the expense of billions later. One of the most promising deficit-reduction strategies, strange as it may sound, involves spending more money on such investments. Fortunately, the sums involved are not huge relative to the federal budget. The annual budget of the National Institutes of Health, the primary funder of medical research, was $31 billion last year, equal to about 1 percent of federal spending."

5. "Altogether, combining military and civilian sectors, the federal government has spent about half as much on investment in recent years, as a share of the economy, as it did in the 1960s."

6. "'Looking across the whole 40-year period, the basic story of U.S. fiscal policy is fairly simple,' Elmendorf, the director of the Congressional Budget Office, has written. 'The country financed an increase in Social Security, Medicare, and Medicaid spending by reducing defense spending relative to the size of the economy.” The numbers are almost a mirror image of each other. In 1970, the federal government spent 3.8 percent of gross domestic product on Medicare, Medicaid and Social Security and 8.1 percent on the military. By 2007, the percentage spent on the three benefit programs had risen to 8.2 percent, and the military’s percentage had fallen to 3.9 percent.'"

7. "Two married recent retirees who had typical earnings over their lives will have paid about $88,000 in dedicated Medicare taxes through the payroll tax, according to a calculation by Eugene Steuerle, Stephanie Rennane and Caleb Quakenbush, all of the Urban Institute. That sum includes the portion of the tax that employers pay and is expressed in today’s dollars (adjusted for both inflation and the interest the money would have earned over the years). In return for the $88,000 in lifetime taxes, that married couple can expect to receive benefits worth more than three times as much: $387,000."

8. "Patients and doctors alike gravitate toward the latest, most expensive treatment, regardless of whether it is the most effective. Common treatments for prostate cancer, for example, range from about $25,000 to more than $100,000. “No therapy has been shown superior to another,” an analysis by the RAND Corporation concluded. But which therapies are growing the most rapidly? The most expensive ones, like proton radiation therapy. "

9. "The choice isn’t between rationing and not rationing. It’s between rationing well and rationing badly. Given that the United States devotes far more of its economy to health care than other rich countries and doesn’t get better results, it’s hard to argue that we are now rationing very rationally."

10. "Perhaps the best news in the entire messy deficit debate is that the kind of tax increases needed to make a real difference are not very scary. Making changes so that the tax code would raise, say, an additional 2 percentage points of GDP over the next 25 years would be entirely in keeping with the direction of American history. The evidence strongly suggests that it would not derail economic growth. And a disproportionate share of the increase could come from a segment of society that has done very, very well."

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Evan Soltas · February 11, 2013