Debt Digest | Inflation, Poverty, and the National Security Squeeze
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
Raising taxes on ‘the wealthy’ won’t save entitlements. Conspicuously missing from the FY24 presidential budget were major reforms to Social Security. Biden previously proposed higher taxes on those earning $400,000 and more to shore up benefits. “To make Social Security solvent without benefit cuts & tax increases only on $400k+ in earnings requires a tax rate of over 23%, on top of all the other taxes those earners pay. That's neither politically nor economically realistic,” argues the American Enterprise Institute’s Andrew Biggs. The story is similar for Medicare as higher taxes will chase ever higher spending in Biden’s budget.
Central banks missing inflation targets impacts deficits. Investment strategist Joachim Klement writes that “Because central banks have systematically undershot inflation expectations since 2001…researchers estimate that the US government has paid some 2.2% of GDP too much in interest to bondholders.” Cato’s Norbert Michel questions the broader predictive power and utility of the Federal Reserve. “There’s more than enough empirical evidence to reconsider whether the Fed has contributed positively to economic stabilization.”
Setting the record straight on Social Security. In a recent article, economist Paul Krugman outlines some of the challenges facing Social Security. He argues that “calling for an increase in the retirement age is, in effect, saying that janitors can’t be allowed to retire because lawyers are living longer.” C. Eugene Steuerle challenges this and several other claims made by Krugman. More likely, “failure to adjust retirement age for longevity favors those with higher incomes.” Read Boccia’s commonsense proposals to reform Social Security here.
New student loan proposal costs hundreds of billions. The Biden administration has proposed a new income-driven repayment plan for federal student loans. The scheme would offer more generous borrowing terms to students based on income and family size. The Congressional Budget Office estimates the proposal will cost taxpayers $230 billion over 10-years. As the Committee for a Responsible Federal Budget’s Maya MacGuineas explains, “The total cost of the President’s student debt plans may be close to a trillion dollars – and all to be spent without Congressional approval.”
Rethinking poverty. Economist Rebecca Blank, who passed away last week sought to replace the Census Bureau’s outdated and inaccurate Official Poverty Measure. Her revised Supplemental Poverty Measure accounts for other measures of economic well-being and includes government benefits. It was described as “without question the most important new development in poverty measurement in over 30 years.” The change also affects measures of inequality. After accounting for government subsidies and taxes, Cato’s John Early finds “the top quintile receives only 4 times as much income as the bottom, only one-quarter as much inequality as the 16.7 ratio for the incomplete official Census measure.”
Americans believe unfettered spending harms national security. According to new TIPP polling, a bipartisan majority of Americans (63%) believe “excessive federal spending undermines U.S. national security.” See the figure below for more detail. Nearly 60% agreed that excessive spending on non-defense programs will undermine America’s ability to respond to China. Read more about the economic and national security implications of high debt here.
