Are Concerns over Growing Federal Government Debt Misplaced?

Related publications

• Public Policy Brief No.155 30 June 2021

  Can Biden Build Back Better?

  L. Randall Wray and Yeva Nersisyan
  Abstract

  President Biden’s proposals for investing in social and physical infrastructure signal a return to a budget-neutral policymaking framework that has largely been set aside since the outbreak of the COVID-19 crisis. According Yeva Nersisyan and L. Randall Wray, this focus on ensuring revenues keep pace with spending increases can undermine the goals internal to both the public investment and tax components of the administration’s plans: the “pay for” approach limits our spending on progressive policy to what we can raise through taxes, and we will only tax the amount we need to spend.

  Nersisyan and Wray propose an alternative approach to budgeting for large-scale public expenditure programs. In their view, policymakers should evaluate spending and tax proposals on their own terms, according to the goals each is intended to meet. If the purpose of taxing corporations and wealthy individuals is to reduce inequality, then the tax changes should be formulated to accomplish that—not to “raise funds” to finance proposed spending. And while it is possible that general tax hikes might be needed to prevent public investment programs from fueling inflation, they argue that the kinds of taxes proposed by the administration would do little to relieve inflationary pressures should they arise. Under current economic circumstances, however, the president’s proposed infrastructure spending should not require budgetary offsets or other measures to control inflation in their estimation.

  Download Public Policy Brief No. 155 PDF (984.38 KB)
• e-Pamphlet 11 August 2021

  What Is MMT’s State of Play in Washington?

  L. Randall Wray
  Abstract

  Modern Money Theory (MMT) has been frequently mentioned in recent media—first as “crazy talk” that if followed would bankrupt the nation and then, after the COVID-19 pandemic hit, as a way to finance an emergency response. In recent months, however, Washington seems to have returned to the old view that government spending must be “paid for” with new taxes. This raises the question: Has MMT really made headway with policymakers? This e-pamphlet examines the extraordinary interview given recently by Representative John Yarmuth’s (D, KY-03), Chair of the House Budget Committee, in which he explicitly adopts an MMT approach to budgeting. Chairman Yarmuth also lays out a path for realizing the major elements of President Biden’s proposals. Finally, Wray summarizes a recent presentation he gave to the Congressional Budget Office’s Macroeconomic Analysis section that urged reconsideration of the way that fiscal policy impacts are assessed.

  Download e-pamphlet, August 2021 PDF (3.84 MB)
• Working Paper No.1042 13 February 2024

  Saving Social Security

  Edward Lane
  Abstract

  For more than 25 years, the Social Security Trust Fund was projected to run out of money in 2033 (give or take a few years), potentially causing benefits to be severely reduced in the absence of corrective legislative action. Today (February 2024), projections are made by the Social Security Administration that indicate that future benefits will need to be reduced by roughly 25 percent or taxes will need to be increased by about 33 percent, or some combination to avoid benefit curtailment. While Congress will most probably prevent benefits from being reduced for retirees and those nearing retirement, the longer Congress and the president take to address the shortfall, the more politically unpalatable (and possibly draconian) the solutions will be for all others.

  Dozens of proposals are being evaluated to address the long-term problem by mainstream benefits experts, economists, think tanks, politicians, and government agencies but, with rare exceptions from a few economists, none address the short-term problem of Trust Fund depletion, provide a workable roadmap for the long-term challenges, or consider fundamental financing differences between the federal government and the private sector.

  This paper aims to address these issues by suggesting legislative changes that will protect the Social Security system indefinitely, help ensure the adequacy of benefits for retirees and their survivors and dependents, and remove confusing and misleading legislative and administrative complexity. In making recommendations, this paper will demonstrate that the Social Security Trust Funds, while legally distinct, are essentially an artificial accounting contrivance within the US Treasury that have become a tool to force program changes that, for ideological reasons, will likely shift an increasing financial burden onto those who can least bear it. Finally, while the focus of this paper is on the Social Security system, it would be incomplete without also addressing, albeit in a limited way, the larger political issue of the nation’s debt and deficit along with the implications for inflation

  Download Working Paper No. 1042 PDF (2.11 MB)