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Debt Compromise Doesn’t Solve Deficit Problem: Peter Tanous

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Washington appears to have averted its own manufactured crisis by agreeing to raise the debt ceiling by more than $2 trillion, which is projected to take the U.S. through the beginning of 2013, while cutting $2.4 trillion over the next 10 years.

"I'm happy we got any deal," says Peter Tanous, author of Debt, Deficits and the Demise of the American Economy. "We absolutely needed a deal because we were at the precipice, and we were about to fall off as an economy."

However, the compromise does little to change the economic fundamentals of the country, and it does even less to tackle our biggest problem -- debt. "This deal doesn't come anywhere close to solving our deficit problem," Tanous tells The Daily Ticker's Henry Blodget in the accompanying clip.

He's right, as Henry contends in a previous post:

"The deal calls for a reduction in projected spending by as much as $2.4 trillion over the next decade. This is made up of about $900 billion in caps on discretionary spending (including military spending), plus another $1.2-$1.5 trillion of future spending caps to be determined by a bipartisan deficit-reduction committee. To put this in perspective, the government is expected to spend more than $46 trillion over the next decade, so the reductions are slightly more than 5% of this."

The only way to truly tackle the deficit, Tanous says, is to both raise revenue and cut spending. Tanous suggests we do the latter not by raising taxes across the board, a move he believes could hurt job creation, but through another method. He thinks introducing a VAT (valued-added tax) that taxes consumption rather than income might be the right solution because it "raises a huge amount of revenue."

As for spending cuts, Tanous says politicians must attack the places "where the spending is," such as entitlement programs and defense expenditures. Cuts to these areas may be politically tricky, but they represent a vast majority of the spending in the current budget. The defense budget for FY2012 is nearly $1 trillion, while Social Security and welfare programs make up roughly another $1.3 trillion.

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