The Right Coast

Editor: Thomas A. Smith
University of San Diego
School of Law

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Monday, December 17, 2012

The Tax Hike Canard | Foreign Affairs

Instead, the rising deficit and debt reflect trillions of dollars of new spending on health programs, other new and enlarged transfer programs to individuals, and a variety of transfers to state and local governments. The increased debt creates five problems: First and most obvious, paying the interest on that debt will require enacting higher taxes that will hurt incentives and weaken growth. Second, since foreign investors hold more than half of U.S. national debt, paying interest on it will require selling more U.S. products to the rest of the world and buying fewer products from abroad. That, in turn, means lowering the prices of U.S. exports and paying more for imports, lowering Americans' standard of living. Third, a large debt causes a decline in business investment and therefore in productivity and growth. Fourth, it reduces the government's room to maneuver. In the future, the U.S. government might want to increase spending for a variety of reasons -- including enacting countercyclical stimulus programs or spending more on national security, for example -- and its ability to do so could be constrained by its debt. Finally, a large national debt increases economic vulnerability, particularly to upward shocks in interest rates. 


This is by Marty Feldstein, who is always worth reading. --ts

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