by Calculated Risk on 5/13/2005 02:43:00 AM

Former Treasury Secretary Robert Rubin writes in the NYTimes about the fiscal challenges facing America:

"Most pressing is the 10-year federal deficit, which most independent analysts project at $4.5 trillion to $5 trillion ... "

The General Fund deficit is clearly the largest and most immediate fiscal problem facing America. Any good business manager or political leader would insist that the most pressing problem be fixed first. Rubin proposes:

"...if the tax cuts for those earning above $200,000 were repealed and the inheritance tax as reformed were continued rather than eliminated, the 10-year projected deficit would be reduced by roughly $1.1 trillion, or almost 25 percent, and the 75-year fiscal reduction would be roughly $3.9 trillion, or approximately equal to the Social Security shortfall. This course of action would be similar to the income tax increases that were combined with spending cuts in the 1993 deficit reduction program, which some predicted would lead to recession but which, instead, was followed by the longest economic expansion in our nation's history."

Unfortunately tax increases appear ideologically unacceptable to this administration. Instead they are relying on what Warren Buffett refers to as "wishful thinking and its usual companion, thumb sucking". Rubin concludes:

Of course, we can continue to close our eyes and hope for the best. There's no way to predict whether that will work for another few months or for many more years. But the odds are extremely low that our fiscal imbalances will solve themselves, and we place ourselves at great peril by not facing these realities. Conversely, if we do address these challenges, then with our flexible labor and capital markets, and our historic embrace of change and willingness to take risks, our prospects over time should be very favorable.

I agree with Rubin. I believe if we acknowledge our problems and address them in a rational manner, we can fix them. But all I see from the Bush Administration is denial and wishful thinking. With the Bush Administration's course of non-action, it is difficult to remain optimistic.