Some point to the deficit as a reason to raise taxes. But new research shows that spending cuts are superior to tax hikes when it comes to reducing the deficit.
This should embolden lawmakers to pursue spending reductions in this year’s budget resolution, giving particular focus to reducing entitlement spendinga key driver of debt.
Following on the Tax Cuts and Jobs Act and the massive discretionary spending increase authorized in the Bipartisan Budget Act of 2018, it is even more critical now that lawmakers invoke a powerful budget tool this year-reconciliation-to reduce the growth in entitlement spending.
Typically, when governments try to reduce their deficits, they will either raise taxes or cut government spending. A new working paper published by the National Bureau of Economic Research looked at these two approaches and compiled the results of several studies.