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Deficit reduction: Why it may not be dead despite the costly tax cut deal

The tax cut deal that President Obama signed Friday costs $858 billion, making the cause of deficit reduction that much more challenging. But deficit hawks still see some hopeful signs.

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“You have to try to hold out some optimism, otherwise what’s the point?” says Robert Bixby, executive director of the anti-deficit Concord Coalition. “I worry a little bit about self-fulfilling expectations. If we stop holding politicians accountable because we assume they’re going to do the wrong thing, then why would they ever do the right thing?”

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In the best-case scenario, Friday’s bill signing may represent one final gasp of an old way of doing things – one where bipartisanship means each party gets some of what it wants, and none of it is paid for.

Mr. Bixby says he understands the desire not to allow the Bush tax cuts to expire, causing an effective tax increase that could harm the economic recovery, and the need to do something about unemployment compensation. The bill extends unemployment benefits through 2011, at a cost of $57 billion, and the two-year tax-cut extension costs $801 billion.

“One positive aspect of this bill is its size, in an odd sort of way, in that it seems to have given people sticker shock,” Bixby says. “My reaction is, duh, everybody knew that extending the tax cuts would cost this much. So why are you pretending you just discovered that this will add a lot to the deficit? But the fact that it’s over $800 billion may make it more difficult to keep extending it well into the future. “

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, also says she’s holding on to “slight optimism” over the fiscal situation.

Ms. MacGuineas points to the bipartisan Senate group, led by Sens. Mark Warner (D) of Virginia and Saxby Chambliss (R) of Georgia, as a welcome sign that the efforts of the president’s fiscal commission won’t go to waste. MacGuineas has advised the senators.

“It seems the remarkably good work of the fiscal commission could have died a slow and quiet death if not for this bipartisan group of champions,” she says. “I don’t know that anyone was expecting this, but there appears to be a very serious effort under way in the Senate to keep the momentum of this work alive.”

Many of the senators from the group spoke from the Senate floor before the tax-cut bill passed, urging deficit reduction measures next year.

“It is time for us in the Senate – and excuse the language – to put up or shut up,” said Senator Warner.


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