Brian Riedl Heritage Foundation on Freedom and Prosperity Radio 8-28-10.wmv

Washed away: Where there was once a coastline populated with homes and factories, powerful waves triggered by the tsunami devour anything in their path. Only a scattering trees remain

March 11 (Bloomberg) — Japan was struck by its strongest earthquake in at least a century, an 8.9-magnitude temblor that shook buildings across Tokyo and unleashed a tsunami as high as 10 meters, engulfing towns along the northern coast. At least 26 people were killed by the 33-foot wave and many are missing, according to state broadcaster NHK Television. Bloomberg’s Mike Firn reports. (Source: Bloomberg)

I remember back in December of 2004 when the huge tsunami hit Thailand, and I read about it in the newspaper. Little did I know that the Chinise supplier that provides us with Mopbuckets was vacationing there at the time. He had gone down to the beach and the day looked so nice that decided to rent a boat. Therefore, he went back to his hotel room to get the money and make the phone call. Then he heard a crashing sound and water started to flow through his hotel window, and he was on the 4th floor. Communications were cut off and his factory assumed he had been killed.

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Jason Tolbert in his article “Analyzing the Bush tax cuts,” (Arkansas News Bureau, August 8, 2010), rightly notes:

The Democrats’ talking points center on framing the tax cuts as the “Bush tax cuts.” In their world anything associated with former President George W. Bush is automatically bad. Suddenly these “Bush tax cuts” are to blame for all things wrong with the economy, particularly the deficit. They claim that “extending the Bush tax cuts” will skyrocket the deficit and would be fiscally irresponsible.

Riedl is the author of the article “The Three Biggest Myths About Tax Cuts and the Budget Deficit,” (Heritage Foundation, June 21, 2010), and the next few days I will be sharing portions of his article.

Before coming to Heritage in 2001, Riedl worked for then-Gov. Tommy Thompson, former Rep. Mark Green (R-WI)., and the Speaker of the Wisconsin Assembly. Riedl holds a bachelor’s degree in economics and political science from the University of Wisconsin, and a master’s degree in public affairs from Princeton University.

The surging budget deficit will likely dominate the national economic debate for years to come. Even after the recession ends, persistent trillion-dollar deficits are projected to double the national debt by the end of the decade. In the absence of reform, the financial markets will eventually respond by withdrawing capital, pushing up interest rates, and demanding immediate budget reforms—much like Greece is currently experiencing.

Putting the federal budget on a sustainable path will require drastic reforms. Balancing the budget by 2020 would require either eliminating one-third of all spending, raising taxes by 50 percent, or a combination of the two. This enormous budget constraint will set the framework for all budgeting decisions—from taxes to health care, from education to Social Security.

Finding a solution to growing deficits requires first correctly diagnosing their cause. Both recent and future budget deficits have been blamed largely on the 2001 and 2003 tax cuts, and to a lesser extent on the war on terrorism, but the data contradict these myths. In reality, spending is almost exclusively the problem:

• The 2001 and 2003 tax cuts were responsible for just 14 percent of the swing from the projected cumulative $5.6 trillion surplus for 2002–2011 to an actual $6.1 trillion deficit. The vast majority of the shift was due to higher spending and slower-than-projected economic growth.
• President Barack Obama’s assertion that most future deficits will result from the 2001 and 2003 tax cuts, the wars in Afghanistan and Iraq, and the Medicare drug entitlement is based on faulty methodology, but is still wrong even using that methodology.
• Above-average spending, not below-average revenues, accounts for 92 percent of rising budget deficits by 2014 and 100 percent by 2017.
• Nearly all rising spending will occur in Social Security, Medicare, Medicaid, and net interest payments.

Deficit reduction efforts should focus on the source of the problem: rising entitlement spending. Any attempt to split the difference between broad-based tax hikes and spending cuts should be rejected outright as a false solution.