issue: Fiscal Policies

Trump’s Failing Fiscal Report Card

Posted on by Alex Terr

The newest fiscal forecast from the Congressional Budget Office (CBO), released this Wednesday, amounts to a damning report card on the Trump administration’s first-year tax and economic policies. It projects staggering deficits, a deteriorating debt path, and rising interest costs. But what makes the assessment especially striking is how much worse these numbers  are compared to just a year ago, before the White House’s profligate, short-sighted agenda was put into effect.

The report’s topline numbers are sobering. Annual deficits are projected to exceed $3 trillion by the end of the decade, up from $1.9 trillion this year and nearly $500 billion higher than last year’s forecast. Over the longer term, the picture is equally troubling. The CBO now projects that over the next three decades, our deficit-to-GDP ratio will increase roughly four times faster than it previously anticipated. As a result, federal debt held by the public is expected to rise to 172% of GDP by 2055, well above last year’s 156% estimate.

This deterioration from previous projections is not coincidental. It reflects deliberate choices made by the Trump administration over the past year. Take the One Big Beautiful Budget Act (OBBBA), the administration’s domestic policy centerpiece. The law’s extension and expansion of trillions of dollars in unpaid-for tax cuts is projected to add roughly $4.7 trillion to the deficit over the next decade. This large cost was no secret during the legislative process, yet many supporters argued that rapid growth would cover the gap. CBO’s analysis tells a different story, pointing to a modest and temporary boost to GDP, with long-run economic growth largely unchanged from a year ago.

The administration’s immigration agenda has also taken a toll on America’s fiscal outlook. By ramping up deportations — while also sharply cutting legal immigration — the administration is precipitously shrinking the labor force, constraining long-term economic output, and eroding the future tax base. CBO projects that overall, the administration’s immigration policies will cumulatively increase the deficit by roughly $500 billion over the next decade.

Even more worrisome is that CBO projections are likely overestimating the government’s only major new source of revenue. It credits the Trump administration with roughly $3 trillion in new tariff revenue, which, despite tariffs’ many other damaging economic effects, has partially offset the impact of their deficit-fueling policies elsewhere. But the bulk of this new tariff revenue is built on legally dubious emergency declarations currently being litigated in the Supreme Court. If the justices strike down the tariffs, America’s fiscal trajectory could soon look even worse than CBO’s already somber projections. 

This lack of fiscal discipline in Washington is especially reckless given the nation already pays more than $1 trillion annually for debt servicing, which reached its all-time high as a percent of GDP in 2025. Now should be the time for lawmakers to reduce the deficit and bring interest payments down to a manageable level. But instead, the CBO projects that debt servicing costs will continuously break new records going forward. By 2047, interest costs are expected to eclipse Social Security to become the largest federal expenditure. By 2055, they will constitute a whopping 6.8% of GDP, more than double what they are today and 25% higher than last year’s projections. 

Beneath these interest projections lies an equally troubling structural shift. When the government’s average interest rate rises above the economy’s nominal growth rate, debt begins to compound faster than the economy can grow its way out of it, setting up a dangerous spiral. In that environment, even modest deficits can cause the debt-to-GDP ratio to climb, forcing policymakers to embrace extreme austerity measures and run sustained primary surpluses just to stabilize the fiscal outlook. The CBO projects that this will be the case within the next few years — far earlier than its previous forecast of 2045 — making today’s deficit binge even more perilous than it may appear. 

A worsening fiscal outlook ultimately means lower living standards. Americans face the prospect of  higher interest rates across the economy, appearing as higher mortgage payments, auto loans, and small business financing costs. Persistent deficits can also crowd out private or public investments, dampening productivity and wage growth over time. And for the millions of people that rely on government programs, rapidly increasing interest costs will force more and more revenue just to pay for yesterday’s consumption, leaving less available for critical public services and programs. 

This administration remains wholly uninterested in fiscal discipline, choosing to embrace fantastical promises about cost-cutting and growth rather than confront the dismal reality its policies are ushering in. But to prevent the biggest consequences of runaway debt, Washington must act as soon as possible to reverse course and confront our nation’s fiscal challenges. Bringing the deficit down to 3% of GDP, as one recent bipartisan resolution proposes, would be a sensible step in the right direction. But words alone won’t be enough. Lawmakers must deliver a comprehensive, balanced package to do so, including pro-growth tax reform that raises adequate revenue, sensible entitlement adjustments that reflect demographic realities, and a retreat from this administration’s economically damaging trade and immigration policies. 

The Pro-Growth Tax Reform Hidden Inside a Fiscal Trainwreck

Posted on by Alex Terr

Six months after the One Big Beautiful Bill Act was signed into law, the country is already beginning to feel its consequences. Cuts to state-administered programs like Medicaid and SNAP have left massive holes in state budgets, forcing cuts to important programs. Meanwhile, the law’s tax cuts have kept deficits near record highs, leading to stubbornly high inflation. But tucked within this regressive and fiscally irresponsible tax law, there is one change that will benefit everyone. This provision, known as full expensing, will reduce our tax code’s penalty on business investment and lead to heightened economic growth.

In America, corporations are taxed based on their profits, meaning companies may deduct most business expenses from their taxable income every year.  Historically, however, the corporate tax code included one major exception. When companies invested in long-lived assets — such as vehicles, machinery, or computers — they were required to spread deductions over several years, rather than immediately deducting the full cost. Because a tax deduction received in the future is worth less in inflation-adjusted terms than one received today, this feature of the tax code effectively penalizes investment. In some cases, the penalty was extreme — businesses had to wait 39 years to fully deduct spending on some classes of investment, for example, reducing the real value of the deduction by over half.

To eliminate this bias against productivity-enhancing investment, the One Big Beautiful Bill Act (OBBBA) added new permanent full expensing provisions for most business investments, including research and development, and allows businesses to now immediately deduct the cost of many of their capital investments. It also temporarily extended full expensing to manufacturing structures like factories, though the provision is set to expire in 2031. In the long run, the bill’s permanent expensing provisions account roughly for just 5% of its projected cost. Yet their economic impact could be substantial: one analysis estimates that the changes could increase America’s economic output by more than $200 billion per year.

Unfortunately, however, much of full expensing’s benefits will be offset by the rest of the Republican tax bill’s provisions, which will severely damage our economy. The majority of the law’s tax cuts were spent on needless giveaways to wealthy Americans and special interest groups. These costly provisions left limited space for pro-growth reforms, so full expensing for most physical structures was excluded from the final law. Worst of all, Congress refused to pay for the law’s multitrillion-dollar price tag, which is projected to increase our national debt by 50% of GDP over the next 30 years. This debt burden will lead to higher inflation and lower economic growth, which will completely crowd out and overtake full expensing’s economic benefits.

Both policymakers and Americans might wonder why they should care about a tax penalty placed on profitable corporations; some progressive Democrats even oppose full expensing as a windfall for wealthy corporations. But this critique overlooks that business’s investment decisions don’t just impact shareholders — they affect the entire economy. When profitable firms reinvest earnings in new capital, they expand production, raise worker productivity, and support job creation. Over time, these gains all translate to higher living standards, increased wages, and more opportunities for American workers. By contrast, when the tax code discourages investment, firms are more likely to return profits to shareholders, a choice that does little to improve wages or economic opportunity for most Americans.

So how can lawmakers build on the success of full expensing, while also addressing the GOP tax bill’s economic harm? Comprehensive reforms to the corporate tax code, outlined in PPI’s 2024 budget blueprint, would allow it to raise more revenue from profitable companies without compromising economic growth. To start, Congress should expand pro-growth full expensing by permanently enabling it for physical structures, which would promote investments in housing, factories, and more.

It should also prioritize paying for not only new expensing provisions, but the mountain of spending it has already piled onto the national debt. Phasing out inefficient tax expenditures and loopholes such as the deduction for interest on corporate debt, the corporate state and local tax deduction, and more would be a promising start. To increase revenue even further, it should also raise the corporate tax rate from 21% to 25%, closer to the average rate in the developed world.

Lawmakers across the political spectrum should agree: America needs a corporate tax code that raises more revenue without sacrificing economic growth. Building on existing full-expensing provisions to encourage investment, while pursuing other tax reforms to offset the cost, would move our tax code decisively in that direction.

Ritz for Democracy: A Journal of Ideas: Wealth Taxes Are a Dangerous Distraction

Posted on by Alex Terr

In a written debate for Democracy, a Journal of Ideas, PPI’s Ben Ritz debates the question: should billionaires exist? In his responses, Ritz argues for a pragmatic approach to reduce inequality in America, rather than a large wealth tax designed to tax billionaires out of existence.

Ritz acknowledges that inequality is a major problem in America, and that we need new laws to prevent wealthy Americans from wielding unfair political influence. But he also stresses that billionaires are not responsible for every problem in American society, as his opponents all but assert. By blaming billionaires for issues like climate change and housing affordability, activists distract from real solutions to those problems

Furthermore, implementing a wealth tax to combat inequality would have enormous unintended consequences. In countries where they have been tried, wealth taxes have been difficult to enforce, leading to astronomical rates of tax evasion. Furthermore, wealth taxes damage the economy by incentivizing wealthy Americans to spend down their fortunes, rather than investing in the American economy. These incentives would slow economic growth and reduce wages for working people across America

Instead of focusing on an unrealistic wealth tax, Ritz calls for real solutions to reduce inequality in America. He recommends that lawmakers raise the top tax rates for income and capital gains, close loopholes in the tax code, and implement a progressive inheritance tax to combat intergenerational wealth concentration. These pragmatic solutions would combat inequality, without destroying the economic system that made America one of the most prosperous countries in the world.

Read the full argument in Democracy.

A Smarter Path Forward on Premium Tax Credits

Posted on by Alex Terr

Two weeks ago, Congress let another deadline pass by, failing to act on the year-end expiration of tax subsidies that help millions of Americans afford health insurance. This legislative failure has already begun to hurt Americans, with 1.4 million fewer people enrolling in health insurance plans on the federal marketplace. And despite months of legislative attention, Congress is no closer to a real solution to reduce health care costs for the American people.

Most Democrats are still demanding a three-year extension of the pandemic-era subsidies, with no way to pay for it. But while their plan did advance in the House, it stands no chance in the Senate. Meanwhile, most Republicans are still clueless on health care, unable to offer any real solutions to reduce costs. Even the Senate’s “pragmatic dealmakers” have failed to make progress, with deliberations stuck in the mud. 

It’s time for a compromise like the one that PPI proposed in September. Our plan would strike a sensible middle ground, preserving many benefits for low-income Americans but saving money by targeting subsidies to those who need them most. The subsidies would also be permanent, paid for by cracking down on unfair practices that insurance companies and large hospitals use to overcharge the federal government.

Congress Shouldn’t Repeat the Mistakes that Got Us Here

To understand why a compromise is needed, it’s worth recalling how these enhanced subsidies came to be. In 2021, Democrats temporarily expanded the Affordable Care Act’s (ACA) health insurance subsidies as part of their pandemic relief bill. The enhanced tax credits were designed for a health emergency, and were therefore unusually generous. But once the pandemic had subsided and the tax credits were set to expire in 2022, many Democrats argued that they should be made permanent.

To some extent, these Democrats had a point — the enhanced subsidies provided real financial relief and helped push America’s uninsured rate to a record low. They also eliminated the ACA’s “benefit cliff,” which caused enrollees to lose all of their benefits if their income rose above an arbitrary threshold. But moderate Democrats realized that the pandemic-era subsidies were deeply flawed. The benefit formula was skewed toward higher-income enrollees, with some families making over $300,000 per year being eligible for taxpayer support. And a permanent extension would have cost roughly $300 billion over ten years, adding fuel to our ballooning national debt.

At the time, my colleagues at the Progressive Policy Institute called for a permanent compromise. But instead, Congress chose the worst possible approach, extending the full pandemic-era subsidies for three years. Rather than solving the problem, lawmakers guaranteed that it would return in 2025.

A Better Way Forward

While Congress failed to meet its 2025 deadline for action, a bipartisan group of Senators is still hoping to find a solution (and make it retroactive). The details of this plan are still unfinished, but negotiators will surely be tempted to propose a temporary, deficit-financed version of the subsidies — nothing more than a repacked version of the ideas that have failed to gain traction for months. Instead of rehashing failed ideas, negotiators should get behind a sustainable and permanent solution to make health care more affordable.

If Senators are willing to take the second approach, they should turn to PPI’s proposal, which would enact a more affordable version of the subsidies and pay to make them permanent. Our plan would preserve free health insurance for Americans in poverty and would provide more generous support than the original ACA for people earning up to 350% of the federal poverty level. It would also eliminate the ACA’s benefit cliff, meaning middle-income Americans wouldn’t immediately lose all of their tax credits if they receive a modest raise. Crucially, the plan would cost just half as much as the pandemic-era subsidies, generating the greatest savings by scaling back subsidies for upper-income enrollees that don’t need them.

This proposal would be fully paid for through savings in the health-care system. It cuts costs by adopting site-neutral payments in Medicare, ensuring that the program pays the same rate for a procedure regardless of whether it is performed in a doctor’s office or a hospital. It would also crack down on upcoding in Medicare Advantage, the practice in which private insurers make their patients appear sicker than they really are in order to secure higher government reimbursements.

Not only are these proposals smart policy, but they would also undercut the strongest argument against the subsidies — that subsidies, on their own, do not drive down the underlying costs of health care. By cracking down on large hospital systems and insurance companies that siphon money from our medical system, these reforms could do more to reduce costs than any law since the Affordable Care Act.

The stakes are too high for politicians to waste time on unrealistic proposals or temporary fixes. It’s time for Congress to get behind a credible solution to reduce health-care costs and provide long-term security for the millions of Americans who purchase health insurance through the ACA’s marketplace.

Trump’s New “Affordability” Agenda Would Just Make Everything Worse

Posted on by Max Sherrill

The results of last week’s elections made it clear that the top-of-mind issue for voters is the rising cost of living. Democrats Mikie Sherrill of New Jersey and Virginia’s Abigail Spanberger both won their gubernatorial race by double digits after focusing their campaigns on affordability. Their victories coincided with new polling showing widespread distrust in President Trump’s handling of the economy, underscoring just how politically vulnerable the White House is on cost-of-living issues. 

In the days that followed, the administration responded by releasing a new “affordability agenda.” The plan includes a 50-year mortgage, $2,000 tariff rebate checks, and cash to help people with health-care expenses. Unfortunately, each of these proposals would push prices higher, not lower. 

To start, the administration’s proposal to shift from 30-year to 50-year mortgages may sound like a break for homebuyers because monthly payments would likely fall by a few hundred dollars a month. But stretching loans across half a century dramatically increases total interest paid, delaying the building of equity and leaving homeowners more financially vulnerable. For a $400,000 home with a 10% down payment, a 50-year mortgage at today’s 6.25% fixed rate would reduce monthly payments by roughly $250 compared with a standard 30-year loan. But over the life of the loan, total interest payments would almost double, from $438,000 under a 30-year mortgage to $816,000.

Meanwhile, the policy does nothing to expand housing supply–the real driver of long-term affordability. We face a multi-million-unit housing shortage, driven by restrictive zoning, slow permitting, and years of underbuilding. Without addressing those barriers, cheaper financing simply fuels more bidding for the same limited number of homes, causing home prices to inflate. Real relief requires adding more housing, not just stretching mortgage plans. 

The administration’s second proposal — sending Americans $2,000 checks funded by tariff revenue — is equally misguided. Tariffs are taxes paid by U.S. consumers, so any “rebate” would simply return money Americans already paid through higher prices. Moreover, the revenue might not even be collected because the administration claims tariffs as an effective tool to pressure trading partners into new trade deals. If those deals ultimately involve lifting tariffs — as the White House frequently suggests–then the revenue they are counting on will never materialize. 

And even if the tariffs raise real revenue, the Trump administration has already spent it. The White House has argued that the massive tax cuts in The One Big Beautiful Bill Act (OBBBA) didn’t add to the deficit because their costs would be offset by tariff revenue. That isn’t true, but even if it was, it would mean any new checks would have to be financed with more borrowing. Americans already saw the costly consequences of deficit-financed payments in 2021 when both Presidents Trump and Biden supported an identical stimulus check. In the end, the biggest effect of this policy was to help push inflation to its highest level in four decades. Trump’s rebate checks would repeat this mistake — injecting a fresh burst of demand into an economy constrained by supply shortages. The Committee for a Responsible Federal Budget estimates these rebates would cost roughly $600 billion per year, a staggering amount of new deficit-financed stimulus.

A similar dynamic plays out in the administration’s proposed health-insurance plan. With enhanced Affordable Care Act (ACA) subsidies set to expire at the end of the year, the White House and Congressional Republicans have floated a plan to send unrestricted cash to consumers to buy any plan they want. This would hollow out the ACA marketplaces by encouraging healthier individuals to buy cheaper, less comprehensive coverage. As healthier people leave the marketplace, premiums will rise for everyone else (by definition, more sicker people), prompting insurers to exit and leaving millions with fewer options and higher costs. 

Republicans frame this approach as one that prioritizes consumer choice, but that narrative ignores the structural barriers that prevent health care markets from functioning like ordinary markets. Most patients lack the information needed to shop for value when prices are unclear and providers hold the negotiating power. Simply handing people cash does nothing to change these underlying dynamics.

Even if the policy were good, it would be almost impossible to implement in the middle of an active enrollment cycle, potentially creating serious operational and regulatory risks. The health-care marketplace is built on stable rules and predictable subsidies. Abruptly moving to an entirely different model could confuse consumers and create administrative chaos for insurers precisely when millions are looking to secure coverage for the coming year. 

These policies are all classic demand-side subsidies that put more government-funded purchasing power into the hands of consumers while doing nothing to improve supply. We have already seen how this movie ends. As PPI has written, the central flaw of President Biden’s economic approach four years ago was its overwhelming focus on subsidizing demand: spending trillions in stimulus while doing far too little to expand supply. That imbalance contributed to the highest inflation in 40 years, effectively negating Biden’s most significant legislative accomplishments and ultimately contributing to the political backlash that cost Democrats the White House. 

Now, the Trump administration is repeating those same policy mistakes, only with more damaging consequences. Like Biden, President Trump is making his “affordability agenda” all about boosting household purchasing power without addressing the supply-side challenges that are actually responsible for higher prices. And the risks are far greater this time around following the passage of the fiscally-irresponsible OBBBA that will already stand to add trillions of dollars to the deficit over the next decade.

If the goal is to actually cut costs, policy should focus on expanding supply and lowering structural prices, not simply subsidizing demand. In health care, PPI has proposed a pragmatic reform of the ACA’s premium tax credits that would lower premiums instead of inflating them. On trade, reducing tariffs — and avoiding economically destructive trade wars — remains one of the most direct ways to cut consumer prices. And PPI has long argued for zoning and land-use reform in order to build enough homes to bring down housing costs.

Americans need lower prices, stronger competition, and policies that expand supply rather than simply encourage people to bid against one another for scarce goods and services. A serious affordability agenda would start there. Right now, the administration’s plan offers the illusion of relief — and the certainty of higher prices. It’s time for a more pragmatic strategy that tackles the real drivers of high prices.

Ritz on SiriusXM POTUS Mornings with Tim Farley

Posted on by Max Sherrill

Ben Ritz joined SiriusXM POTUS Mornings with Tim Farley to discuss the end of the shutdown, including how Congress’s reliance on continuing resolutions undermines updated policymaking, locks in outdated funding levels, and creates mounting challenges the longer they remain in place.

Ritz on CSPAN: Democrats and Fiscal Policy

Posted on by Alex Terr

Economic and public policy analysts familiar with Democratic policy talked about how Democrats can assert fiscal responsibility in both their policies and messaging. The panelists addressed topic including how Democrats can differentiate themselves on the campaign trail when discussing fiscal issues, the growing national debt, Social Security solvency, and how Democrats could use fiscal elements of Republicans’ One Big Beautiful Bill Act to their advantage when campaigning in the next election. This discussion was part of the Center for New Liberalism’s 2025 New Liberal Action Summit.

 

A Better Way to Fix the Pandemic Premium Tax Credit Than Income Caps

Posted on by Alyssa Brown

One of the biggest obstacles to ending the government shutdown is partisan disagreement about how to address the looming expiration of a pandemic-era expansion of the Affordable Care Act’s (ACA) premium tax credit (PTC). Established in 2014, the PTC gave subsidized health insurance to Americans who didn’t receive it through their employer or the government. The American Rescue Plan (ARP) made this program substantially more generous, including to higher-income households that were never supposed to receive assistance under the original ACA. Democrats want to continue the pandemic PTC expansion in its entirety, while most Republicans want it to expire.

A bipartisan consensus appears to be emerging that the way to better target assistance moving forward and end the shutdown is to impose an income cap on eligibility for the PTC. Unfortunately, this compromise would restore the biggest flaw in the original ACA design that ARP solved: the benefit cliff. Before ARP expanded the PTC, households with income greater than 400% of FPL were not eligible for the ACA subsidy. That meant a single extra dollar of income could trigger thousands of dollars in higher premiums — an abrupt cutoff that discouraged work. Bringing back an income cap today would leave households vulnerable to sudden increases in health-care costs as a penalty for working. 

Instead of repeating past mistakes, a better approach would be to establish a gradual phase-out of benefits for households as their income increases. This would smooth out the benefit cliff established under the ACA and avoid giving windfalls to high-income households.

Under PPI’s preferred approach, households with incomes under 300% of FPL would be eligible for the same expanded subsidies next year that they are today. But rather than capping health-care premiums at a certain percentage of recipients’ income, premiums would steadily increase as household income increases. As a result, high-income households’ subsidies would taper off as their earnings increase, thus reducing unnecessary benefits for high earners without recreating the benefit cliff. Subsidies would also fully phase out at lower income levels than they do today.

If lawmakers are concerned about high-income households still qualifying for subsidized health insurance, the best solution is to adjust the phase-out such that a household’s premiums are set to increase starting at a lower level of income. Accordingly, PPI proposes that the phase-in threshold gradually decreases for each of the next two years — similar in concept to a recent proposal from Sen. Mike Rounds (R-S.D.) to gradually phase down the credits back to pre-pandemic levels. But PPI’s proposal preserves free health insurance for families in poverty while still requiring reasonable contributions from middle-income households that can afford it, and lowering benefits for high-income households that don’t need the support.

Along with providing generous support to those who don’t need it, the other problem with simply extending the pandemic PTC expansion is that it is expensive, costing at least $23 billion per year. Rather than cutting health-care costs, it merely shifted the burden onto taxpayers. Fortunately, there are solutions that will both pay for the proposed expansion — letting taxpayers off the hook — and cut health-care costs in the long run. 

Medicare Advantage, which allows seniors to receive their Medicare benefits from private insurers, costs taxpayers tens of billions of dollars per year because certain loopholes allow insurance companies to make patients appear sicker than they actually are, which artificially increases their government reimbursements. The No UPCODE ACT would end this practice and save at least $125 billion over 10 years, according to the Committee for a Responsible Federal Budget. Medicare also currently pays far more for services provided in hospital outpatient departments than in independent physician offices, a disparity that encourages hospitals to buy up clinics and drive consolidation — raising costs for patients and taxpayers alike. Adopting site-neutral payments could save $175 billion over the next decade.

Together, these two reforms would fully offset the cost of PPI’s proposed PTC expansion extension on a permanent basis. By eliminating the benefit cliff under the original ACA and establishing gradual phase-outs, PPI’s plan would prevent middle-class families from experiencing a sudden loss in benefits, ensure the poorest families remain protected, and avoid unnecessary tax subsidies for high-income households. These values reflect the goals of the ACA: affordable coverage and strong work incentives. Now is an opportunity for Democrats to push Republicans to adopt thoughtful reforms to the PTC. Millions of Americans are depending on them to get it right.

Ritz and Kilander for Forbes: Consecutive Continuing Resolutions Could Lead To Deep Spending Cuts

Posted on by Alyssa Brown

Disagreements over the future of pandemic-era health insurance subsidies are threatening to prevent Congress from passing a continuing resolution (CR) needed to prevent a government shutdown on Wednesday. But all the focus on health care has drawn attention away from the effects of the CR itself, which could lead to lawmakers unintentionally imposing some of the deepest spending cuts in modern history.

Congress is supposed to pass 12 appropriations bills each year to fund the roughly 30% of government spending that doesn’t operate on autopilot. When lawmakers fail to pass a new appropriations bill before the previous one expires, they use CRs to temporarily continue government funding using the previous year’s funding levels and policy directives. From 1998 to 2011, CRs covered about one-third of the average fiscal year. But Washington’s dependence on them has risen in recent years: the federal government has been funded by a CR nearly half the time since 2011. And in four years — 2007, 2011, 2013, and 2025 — a CR lasted the entire year, meaning Congress simply declined to pass an appropriation bill.

Now, Congress may rely on a year-long CR yet again to continue avoiding the plethora of policy issues more directly related to the appropriations process than the expiring health-insurance subsidies (which are considered mandatory spending not normally part of the appropriations process). That approach would be unprecedented because Congress has never before gone two consecutive years without passing any original appropriations bills. And there are serious consequences to operating the government at funding levels set more than 18 months ago.

Read the full article in Forbes.

Stablecoins Will Lessen Community Lending

Posted on by Alyssa Brown

After the recent passage of the GENIUS Act, stablecoins — digital assets used for transactions and pegged to the value of the dollar — are expected to become a more common financial tool. The stablecoin market has grown from about $12 million in 2020 to just over $250 billion today.[1] After the Genius Act, JP Morgan projects that it could hit $500 to $750 billion in the next few years.[2]

The law includes many guardrails on stablecoins, with the non-ironic intention of protecting the stability of today’s financial structure. One important issue is whether deposits will flow out of existing banks into stablecoins. That could have significant consequences, including fewer community lending obligations and less credit and investment for small businesses, farmers, and homeowners across the country.

In August, the GENIUS Act became the first major U.S. law focused on the regulation of “payment stablecoins.” The bill is designed to enhance consumer protection, promote innovation, create confidence in the stablecoin marketplace, and protect the financial system.

Payment stablecoins have the following characteristics:

  • Means of Payment/Settlement: Its primary purpose is to function as a medium of exchange for settling transactions.
  • Stable Value: The issuer is obligated to convert, redeem, or repurchase the stablecoin for a fixed amount of monetary value (e.g., U.S. dollar).
  • Reserve Requirements: Issuers are typically required to maintain reserves backing outstanding payment stablecoins on at least a 1:1 basis. Stablecoins can also be pegged to other international currencies, such as the Euro, the Yen, or the Yuan.

In addition to the above, payment stablecoins are prohibited from paying interest/yield solely for holding or using the coins or tokens. There are a number of rationales for this ban.

First, payment stablecoins are by law not securities, commodities, or traditional deposits, and as such face far lighter regulation. If they were allowed to accrue interest, they would more closely resemble the above, but without the financial regulation that protects consumers and the broader financial system. For example, deposit accounts at banks are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC), while stablecoins are not. This means that if used by customers to store their savings, those customers would not be insured against loss should the stablecoin issuer go bankrupt or default.

Second, policymakers were concerned about oversaturation of supply.  There is already considerable competition in the depository marketplace — almost 9,000 banks and credit unions are currently in operation in the U.S. In recent years, that number has declined significantly due to consolidation and, in part, because of a decline in demand. The growing number of nonbank financial institutions has also diminished the demand for insured depository institutions.

Third, the authors of the law wanted to prevent financial instability and the outflow of deposits from insured depository institutions that are more highly regulated and an essential source of lending to communities, small businesses, and homeowners. Technology that allows consumers to bypass banks — otherwise known as disintermediation — could threaten lending to key business sectors that, in turn, could hurt economic growth and innovation.

Yet despite efforts to protect commercial banks and credit unions from the significantly less regulated stablecoin sector, it is not difficult for crypto companies and others to skirt around the prohibition.

For example, some companies, like Coinbase, are exploring ways to offer rewards to stablecoin holders, emphasizing that such rewards are not technically “interest” and are offered for reasons other than merely holding the stablecoin itself. The company already offers a 4.10% reward rate for customers who hold the popular stablecoin USD Coin, also known as USDC. The coin’s issuer, Circle, shares interest revenue from the assets that back USDC with Coinbase. Because of the potential to circumvent the new law, a significant amount of the $18.5 trillion in deposits at U.S. banks and credit unions could flow out of insured depository institutions and into payment stablecoins. A Treasury report from April 2025 estimates that roughly $6.6 trillion in deposit outflows could occur with higher usage of stablecoins (particularly if issuers could offer yields similar to bank accounts), representing a 36% decrease in the total amount of bank deposits.[3]

This level of outflows would be incredibly challenging for banks to weather. Traditional FDIC-insured depository institutions would be forced to compete for an increasingly scarcer amount of funds. This chasing of deposits would be potentially good for depositors in the short term, as banks would be forced to offer higher yields on savings and checking accounts. But over time, this would lead to considerable consolidation within the industry as banks either merge or declare bankruptcy — with smaller community banks likely bearing the brunt of the impact.

This, in turn, would undermine an important source of economic dynamism: community lending. Community banks use deposits to originate approximately 60% of all small business loans and 80% of agricultural loans nationally. The decline in the number of small banks, more scarce deposits, and reduced competition amongst credit providers will all lead to less credit for households, local businesses, and farmers. In many areas, less lending will lead to fewer jobs. For example, small businesses are important employers in rural areas, employing 62% of all workers.[4]

This impact will be especially acute in rural and low-income areas with few credit options, since an outflow in deposits will hinder lending for the Community Reinvestment Act (CRA). Under the CRA, banks are encouraged to meet the credit and community development needs of their entire communities, especially low- and moderate-income (LMI) neighborhoods. Banks are evaluated on their performance in providing loans, investments, and services to these communities, and these evaluations are used when they apply for mergers or other changes to their deposit facilities.

Especially since the Clinton administration’s 1995 reforms to the law, CRA has dramatically increased lending, investment, and basic banking services to underserved communities. The evidence shows that the changes made to CRA coincided with a rise from $1.6 billion in 1990 annual commitments to $103 billion in 1999.  Over that roughly same period, the number of CRA-eligible home purchase loans originated by CRA lenders and their affiliates rose from 462,000 to 1.3 million.

Today, CRA continues to benefit communities around the nation. For example, there have been nearly $5 trillion in CRA-qualifying mortgages and small business loans made from 2010 to 2024, according to an analysis by the National Community Reinvestment Coalition. In 2023 alone, CRA lending accounted for roughly $387 billion in small business and community development loans.[5] Furthermore, this is a substantial portion of all lending that depository institutions do in these areas, accounting for nearly 77% of outstanding small business loan dollars and 35% of outstanding farm loans.

Yet unlike deposits at banks, stablecoins have no community lending obligations. While it is not certain exactly how much damage a one-third decline in deposit levels would do to CRA’s vital source of credit, history does give us a reason for concern. At the end of 1980, money market mutual fund assets were only about $135 billion. Today, that number is closer to $5 trillion, making it second only to banks among financial intermediaries. The main advantage mutual funds had in the early years was the industry’s ability to offer higher interest rates than banks because of regulatory limits on insured depository institutions. This led to explosive growth throughout the decade and a substantial level of deposits shifting from banks and thrifts into money market mutual funds, weakening these institutions and undermining the goals of CRA. While successful reforms in the 1990s helped soften the impact, the underlying shift in deposits nevertheless cut the amount of funds available for investment in underserved communities.

CONCLUSION

To ensure financial stability, policymakers have a responsibility to ensure that the GENIUS Act’s prohibition on interest-bearing stablecoins is effective. The delineation between payment stablecoins and stablecoins that would offer interest was carefully thought out and was placed into the law for a reason — to protect large outflows of deposits from insured depository institutions that are the backbone of lending to small businesses and homeowners. The Federal Reserve and other regulators should proceed cautiously as they develop regulations to implement the GENIUS Act, heeding Congress’s mandate to balance the innovation and efficiency gains that stablecoins offer with protecting deposits and the critical lending they enable. Finally, Congress may want to revisit and enact legislation that closes any loopholes created by the GENIUS Act that would undermine insured depository institutions and the communities they serve.

 

[1] Rafael Nam, “Why There’s So Much Excitement Around a Cryptocurrency Called Stablecoin,” National Public Radio, July 15, 2025, https://www.npr.org/2025/07/15/nx-s1-5467380/crypto-stablecoin-genius-act-congress

[2] “What to Know About Stablecoins,” JP Morgan, September 4, 2025, https://www.jpmorgan.com/insights/global-research/currencies/stablecoins.

[3] Dylan Toker and Gina Heeb, “Why Banks Are on High Alert About Stablecoins,” Wall Street Journal, July 18, 2025, https://www.wsj.com/finance/currencies/why-banks-are-on-high-alert-about-stablecoins-2f308aa0?mod=Searchresults&pos=2&page=1.

[4] Michelle Kumar and Justice Antonioli, “Small Businesses Matter: Increasing Small Business Access to Capital in the Digital Age,” Bipartisan Policy Center, April 29, 2024, https://bipartisanpolicy.org/report/small-businesses-matter-capital-access/.

[5] “Findings from Analysis of Nationwide Summary Statistics for 2023 Community Reinvestment Act Data Fact Sheet,” Federal Deposit Insurance Corporation, 2023, https://www.fdic.gov/findings-analysis-nationwide-summary-statistics-2023-community-reinvestment-act-data-fact-sheet.

Ritz for Forbes: On Social Security’s 90th Birthday, A New Idea To Solve Its Shortfall

Posted on by Max Sherrill

Since it was signed into law 90 years ago today, Social Security has become the most successful antipoverty program in American history and the foundation upon which most Americans plan their retirement. But changing demographics and policy mistakes have weakened that foundation and put the program on track for a crisis before the end of the next president’s term. Policymakers must act quickly to strengthen the program without imposing an unfair burden on vulnerable seniors or working Americans.

At its conception, Social Security was designed to be an “earned benefit” — workers pay a dedicated payroll tax on wages up to a certain level, and once these workers reach retirement age, they receive benefits to replace some fraction of the wages upon which they were taxed. But in practice, funds paid in by today’s workers are used to pay the benefits due to today’s retirees. And every year since 2010, the program has spent more on benefits than it raised in dedicated revenue because the ratio of workers to retirees is worsening as our population ages.

Unfortunately, today’s policymakers have only compounded the problem. Last year, bipartisan majorities in Congress voted overwhelmingly to give higher-income retirees already receiving public pensions the opportunity to draw more generous benefits. And earlier this year, Republicans siphoned off a portion of the program’s revenue stream in their “One Big Beautiful Bill.”

Keep reading in Forbes.

Ahead of its 90th Birthday, PPI Offers Innovative Blueprint to Secure Social Security’s Future

Posted on by Alyssa Brown

WASHINGTON — Ninety years ago this Thursday, President Franklin D. Roosevelt signed the Social Security Act into law, creating a promise that American workers could count on a measure of dignity and financial security in old age. But changing demographics, decades of political neglect, and recent policy missteps have put that promise in jeopardy, with 24% benefit cuts automatically taking effect before the end of the next president’s term if Congress fails to act.

To mark this anniversary and confront the crisis head-on, the Progressive Policy Institute (PPI) today released “Reform That Rewards Work: A New Vision for Strengthening Social Security’s Intergenerational Compact,” a sweeping proposal to rescue the nation’s most important retirement program while making it fairer, more sustainable, and more pro-work.

Authored by Ben Ritz, PPI’s Vice President of Policy Development, and Nate Morris, Fiscal Policy Fellow at PPI’s Center for Funding America’s Future, the plan would restructure Social Security’s benefit formula, modernize eligibility rules, and raise revenue with a more progressive, growth-friendly revenue system. The proposal’s key features include:

  • New “Work Credit” Benefit Formula: Calculate benefits based on years worked, not lifetime earnings, ensuring a low-income worker and their higher-earning boss receive the same benefit for the same number of working years.

  • Targeted Retirement Age Adjustments: Gradually increase the early and maximum benefit ages to reflect longer lifespans, with safeguards for lower-income and long-career workers.

  • Better Cost-of-Living Adjustments: Change COLAs so they no longer overstate inflation, paired with a “longevity bump” for the oldest retirees most at risk of outliving savings.

  • Fairer Spousal and Survivor Benefits: Strengthen protections for widows and widowers while capping excessive subsidies to high-income couples.

  • Generationally Fair Financing: Use a mix of progressive income tax reforms and consumption taxes to spread costs more evenly across generations, rather than using regressive payroll tax increases to make working Americans foot the whole bill for fixing a problem created by previous generations.

“Many Social Security proposals cling to the current system but break the historically important link between contributions and benefits,” said Ritz. “Our plan is unique in that it actually strengthens Social Security’s premise as a benefit people earn through work, all while improving fiscal sustainability and reducing poverty.”

According to independent modeling, the plan would close Social Security’s shortfall through a roughly even mix of benefit reforms and tax changes. Top earners would see modest benefit reductions roughly on par with those already projected to occur under current law, but many low-income and long-career workers would receive higher benefits, leading to substantial poverty reductions for older Americans.

“Any serious plan to save Social Security will involve tough tradeoffs,” said Morris. “What makes ours different is that it balances the books without balancing them on the backs of working Americans. This is the kind of radically pragmatic reform Washington needs.”

Read and download the report here.

Launched in 2018, the Progressive Policy Institute’s Center for Funding America’s Future works to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. To that end, the Center develops fiscally responsible policy proposals to strengthen public investments in the foundation of our economy, modernize health and retirement programs to reflect an aging society, transform our tax code to reward work over wealth, and put the national debt on a downward trajectory.

Founded in 1989, PPI is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Find an expert and learn more about PPI by visiting progressivepolicy.org. Follow us @PPI.

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Media Contact: Ian O’Keefe – iokeefe@ppionline.org