Mark Thoma sends us to Christina Romer, who warns:
Cutting the Deficit, Compassionately: Honest talk about the deficit is risky. Voters are more enthusiastic about the abstract notion of deficit reduction than about the painful details of accomplishing it. But deficit reduction is coming, and this election will most likely determine how it’s done. Democrats owe it to the American people to detail their more compassionate approach so that voters can make an informed choice.
And she tries to make explicit what was implicit in Obama's convention speech:
[G]o slowly. Investors are willing to lend to the United States at the lowest interest rates in our history. That gives us the ability to cut the deficit on our own timetable…. [A]ctual spending cuts and tax increases should be phased in as the economy recovers. Why is this the compassionate approach? Because immediate, extreme austerity would plunge us back into recession…. Every $100 billion of deficit reduction will cost close to a million jobs in the near term. If that isn’t a reason to move gradually, what is? But if you need another, just look at Europe
A second feature of compassionate deficit reduction is well-designed tax reform that raises at least some additional revenue…. Increasing rates on top earners is an obvious way to raise revenue from those who can afford it most…. [L]owering tax expenditures — the roughly $1 trillion of deductions, credits and loopholes in the income tax code…. One big tax expenditure benefiting the wealthy is the low tax rate on capital gains and dividends….
Government health care spending is a major cause of our terrifying long-run budget outlook. Any effective deficit plan has to slow that spending growth…. The central question is whether Medicare and Medicaid should remain entitlement programs guaranteeing a certain amount of care, as Democrats believe, or become defined contribution programs in which federal spending is capped, as Republicans suggest….
Democrats… shouldn’t be defensive about having found $716 billion of Medicare savings as part of the health care reform legislation…. They should ask Mitt Romney, who has vowed to roll back these reforms, why he wants to waste taxpayers’ money…. [T]here is much inefficiency in the current system, so it should be possible to cut costs without lowering benefits…