Here are this week’s reading links and fiscal facts:
The US tax-and-transfer system remains highly progressive after the reconciliation bill. Cato’s Adam Michel explains: “[A]ny broad-based tax cut will, by definition, reduce taxes more in dollar terms for those who pay more, and will also result in a large share of the total tax cut accruing to higher earners. But by percentage change in taxes paid (a more informative way to show how tax changes affect the progressivity of a tax system), the lowest-income taxpayers benefit from the largest tax cuts in the budget bill [see chart below].” Michel notes that the overall tax-and-transfer system became only “slightly less progressive” under the bill: spending cuts reduced the bottom quintile’s total resources by 2.6 percent, while tax cuts increased the top quintile’s incomes by 1.9 percent. He concludes: “The budget bill’s spending cuts are modest and justified in the context of the federal government’s large deficits and massive, highly redistributive transfer system. [...] If these small wins can be preserved and expanded in the future, they may prove to be the most important parts of an otherwise deeply flawed bill.”
Relying on tariff revenue to reduce federal debt is a bad idea. In the New York Times, Yale Budget Lab’s Ernie Tedeschi, quoted by Andrew Dehren, argues: “future leaders in Washington […] may be hesitant to roll back the tariffs if that would mean a further addition to the federal debt load […] And replacing the tariff revenue with another type of tax increase would require Congress to act, while the tariffs would be a legacy decision made by a previous president.” Keeping the tariffs in place is a poor economic decision and not the solution to reducing the debt. Cato’s Scott Lincicome explains: “[T]he tariffs will reduce economic growth and thus offset much, if not all, of the increase in GDP caused by the OBBB’s tax cuts. Just as tax cuts can stimulate economic activity and boost future government revenue, Trump’s tariffs will have the exact opposite effect.”
Political rhetoric and mounting debt creep the nation toward fiscal dominance. David Beckworth of the Mercatus Center explains how fiscal dominance “unfolds gradually, often under the radar, as political incentives converge on the central bank and monetary policy becomes the path of least resistance for managing an untenable fiscal trajectory.” Beckworth points to the prime example of this pattern: “President Trump had shifted from criticizing Fed Chair Powell for not cutting rates for the sake of economic growth to complaining that high interest rates are driving up debt service.” Boccia and Dominik Lett have warned before: “[I]f Congress leaves spending corrections to the last minute, legislators may perceive the draconian fiscal consolidation necessary to bring debt under control as less desirable than monetizing the debt.” As they note, the consequences could be severe: “Central bank money printing to finance government spending can lead to hyperinflation and economic ruin.”
Firing the Bureau of Labor Statistics (BLS) Commissioner threatens the credibility of US economic data. In Bloomberg Opinion, labor economist Kathryn Anne Edwards writes, “the Commissioner of the [BLS] has been fired by the President of the United States for political reasons, launching the $30 trillion economy into uncharted and dangerous territory.” She explains: “The peril facing the economy isn’t a potential recession; it’s losing highly reliable, accurate and transparent data on the health of the world’s largest economy. Think of it as the difference between flying into a storm and flying into a storm completely blind.” Edwards also points to a decline in BLS funding, which led jobs report revisions “[becoming] quite large, suggesting a decline in the quality of production”. As we noted in a previous Debt Digest,“[t]here are better ways to trim the budget than underfunding statistical agencies.” If President Trump wants a better economy, he should support entitlement spending reforms and real cuts that reduce deficits, not accuse statisticians of manipulating numbers he doesn't like.
Upcoming Event: Defusing the US Debt Crisis by Reimagining America’s Social Contract. Drawing from her upcoming book, Reimagining Social Security: Global Lessons for Retirement Policy Changes (August 12, 2025), Boccia challenges outdated assumptions about the US social contract. She argues that defusing the debt crisis requires more than budgetary tweaks—it demands rethinking the role of government in providing entitlements, regardless of need. Highlighting successful international models, she proposes reform ideas tailored to the American context that could ensure economic stability while protecting vulnerable seniors without burying younger generations in debt.”
September 10, 2025, 12:15 pm - 1:15 pm MST. University of Utah S.J. Quinney College of Law and online.
