The correct, non-alarmist framework within which to discuss our fiscal challenges

October 19th, 2016 at 3:31 pm

I couldn’t agree more with David Leonhardt’s anti-alarmist framework regarding the “debt and entitlements” question that’s likely to come up in tonight’s final (woo-hoo!!) presidential debate. David’s rap is much like my own in this recent testimony. It’s particularly germane in this political context because alarmism is often a tactic by those whose true motivation is to undermine and cut social insurance.

–Our debt forecasts have fallen dramatically. There’s still a real, long-term mismatch between tax receipts and spending obligations, but it is much diminished. See Figure 1 here from recent work by budget wiz Richard Kogan.

–Why is it diminished? David appropriately highlights the decline in the pace at which health care costs have grown, a huge source of fiscal oxygen and an important signal of where we have to build on the progress we’ve made. But, as shown in Kogan’s figure 2, declining debt service costs—a function of lower than expected interest rates—is an equally important source of the reduced debt burden.

–Yes, the remaining mismatch is significant, but to call it an “entitlement crisis” merely shows where you put your thumb on the scale. I think of it as a revenue shortfall. Moreover, growing debt simply implies a gap between spending on everything government does and its tax receipts. Thus, one could just as easily label this a “defense crisis,” or a crisis of the unwillingness of Congress to close a bunch of wasteful tax loopholes of the type Trump taps.

–Some in the alarmist crowd like to argue a false equivalency between Trump and Clinton in this space, proclaiming that neither are willing to tackle this long term imbalance. But his plan loses $6 trillion in revenue while hers raises $1.4 trillion. She uses that to pay for her programs, so she’s deficit/debt neutral relative to the baseline. To attack them equivalently on this front is to fail to distinguish between digging the hole much deeper and not doing so.

–So am I (and Leonhardt) absolving presidential candidates from explaining to us how they’re going to deal with this imbalance? I certainly don’t think we could have that discussion rationally in this campaign. Ultimately, the solution involves some combination of higher revenues and spending reductions, but for many years now, congressional Republicans have allowed only the latter. Simply put, we cannot close the budget gap without more revenues. Republican fiscal plans go in exactly the other direction, and I’m not just talking Trump here. Speaker Paul Ryan’s plan is actually quite similar in its damaging budgetary impacts. I give Clinton credit for raising revenues in her plan, though we will ultimately need to get below her $250,000 cutoff.

End of the day, at some point we have to admit that we can’t have $X worth of government forever while raising a fraction of X in revenues. I’m not sure when that conversation should start but I guarantee you it won’t be tonight.



A flash from the past…

October 16th, 2016 at 9:13 pm

My old friend HZ sends me this pic, from the first 100 days of the Obama admin, when the job market and GDP were falling off a cliff and the new President, VP, econ and legislative teams were working around the clock to try to arrest the slide (as was the Fed, of course). We managed to work with Congress to pass the Recovery Act less than four weeks in (imagine that), and the medicine quickly got into the system.

Subsequent research shows that the stimulus, the work of the Fed, and the credit market interventions were instrumental in reversing the worst of the great recession. That said, it was always a tough sell to the public, and once the Tea Party got to town, we pivoted to austerity too soon.

That’s yours truly next to the big man, who looks like he’s thinking “when are these economists gonna stop talking and do something!”


Much needed comic relief, even more needed inspiration, and…corporate tax inversions.

October 14th, 2016 at 8:52 am

This totally cracked me up…pretty brilliant video work, I thought.

Next, this is just a beautiful story, beautifully told, of a business student at Georgetown U breaking through the barrier between himself and a janitor at the university. And it happened right here, in the shadow of our terribly divisive, mean-spirited politics. I read this to my 14-yo at breakfast and she said, “Hmmm…that makes me see the workers at my school differently.” That’s the power of this story.

Finally, from the sublime to the weedy, the Treasury Department finalized their inversion-blocking rule to reduce the value of “earnings stripping.” I explain the deets here, but more importantly, I try to remind everyone of the myriad executive actions and rule changes that are quietly at stake in this election.

Obamacare’s working and tax plans from alternative universes

October 12th, 2016 at 7:13 am

A couple of recent WaPo pieces for your entertainment and hopefully edification.

This one’s from a talk I just gave on how Obamacare is providing health coverage to a lot more people, holding down budgetary costs, and not, I repeat not, killing any jobs (see nice pictures, compliments of Ben Spielberg). Yes, it needs some recalibration–there are some thin markets and some insurers are seeing a sicker population than they initially priced for. A public option would help a lot, btw, in these regards.

Then there’s this tax analysis of Trump and Clinton’s tax plans based on a) new work by the Tax Policy Center and b) Clinton’s new idea to expand the Child Tax Credit. No, of course neither candidate will get what they’re asking for here. But they’ll likely get something. So I try to think about what that might look like.