issue: Fiscal Policies

PPI Statement on the Latest Continuing Resolution and Fiscal Commission Proposal

Posted on by Alyssa Brown

Ben Ritz, Director of the Progressive Policy Institute’s (PPI) Center for Funding America’s Future, released the following statement in support of the bipartisan Fiscal Commission Act of 2023 but in opposition to the partisan government funding bill House Speaker Kevin McCarthy has attached it to:

“PPI commends Reps. Scott Peters, Bill Huizenga, and their 13 co-sponsors for introducing a strong fiscal commission proposal today. Establishing a commission will not, by itself, fix our fundamental fiscal challenges, but this thoughtful legislation would create a bipartisan, bicameral venue to have a serious discussion and craft real solutions.

“If policymakers continue to do nothing, annual interest payments on the debt will exceed defense spending within the next decade and will surpass Social Security as the largest item in the federal budget by 2050. We cannot let the costs of inaction crowd out critical public investments in our economy like education, infrastructure, and scientific research. Moreover, benefits for Social Security and Medicare will be cut across the board automatically by as much as 23% when their trust funds are exhausted between now and 2034.

“The goals this bill sets for the commission to prevent these catastrophic consequences are ambitious but achievable. PPI previously published a comprehensive budget blueprint that would satisfy every requirement in the Fiscal Commission Act while also reinvigorating domestic public investment and transforming our tax code to reward work over wealth. Should this bill or another like it become law, we hope the commission draws from these recommendations.

“However, we do not support Speaker McCarthy’s plan to move the commission forward as part of a partisan government funding bill that cuts discretionary spending deeply below the levels he and a majority of his conference agreed to just four months ago. Passing this package today all but guarantees a pointless government shutdown that will cost taxpayers more than a billion dollars each week. President Biden, House Democrats, Senate Democrats, and Senate Republicans are united behind averting a shutdown by sticking to this summer’s debt-limit agreement. The fiscal commission should come after House Republicans wake up and realize they need to do the same.”

PPI’s Center for Funding America’s Future works to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. It tackles issues of public finance in the United States and offers innovative proposals to strengthen public investments in the foundation of our economy, modernize health and retirement programs to reflect an aging society, and transform our tax code to reward work over wealth.

The Progressive Policy Institute (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. Learn more about PPI by visiting progressivepolicy.org.

Follow the Progressive Policy Institute.

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Media Contact: Amelia Fox – afox@ppionline.org

How to Make Social Security Work for Government Workers

Posted on by The Progressive Policy Institute

Although workers in 94% of American jobs pay into Social Security, a small segment of the population — most of whom work for state and local governments — do not. Since workers in these jobs do not pay Social Security payroll taxes, those who contribute to Social Security for a portion of their career end up getting a greater return on the taxes they do contribute to the program than other Americans with similar lifetime earnings. To address this issue, Congress passed the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) in the late 1970s and early 1980s as an attempt to provide comparable benefits to these workers.

Now, a bipartisan coalition in the House is pushing to repeal these provisions. While it is true the WEP and GPO are imperfect solutions that can unfairly punish some low-income public workers, Congress would be throwing the baby out with the bathwater if they repealed the provisions altogether. Instead of overcorrecting and providing excessively generous benefits to a small cohort of Americans, Congress should consider a proportional benefits system that reduces benefits based on the individual’s contributions to the Social Security program. Not only is this reform the most equitable solution to an important problem, but it remains more in line with the intention of the WEP and GPO.

 

Why are the WEP and GPO necessary?

Social Security benefits are designed to be progressive, meaning that low-income individuals will receive a greater benefit for each dollar they paid into the program through payroll taxes than higher-income individuals. To determine one’s benefit, the average of an individual’s highest 35 years of covered earnings is used to calculate their average indexed monthly earnings (AIME). Individuals receive a benefit equal to 90% of their AIME up to the threshold of $1,115. This percentage decreases as lifetime earnings increase, with beneficiaries receiving 32% of each dollar of their AIME between $1,115 and $6,721, and 15% of each dollar of their AIME that exceeds $6,721 up to a maximum of $13,584.86.

Importantly, the AIME formula only incorporates earnings on which employees and their employers pay payroll taxes. Many state and local government jobs are considered uncovered since their employees do not pay Social Security payroll taxes. Instead, these employees contribute to pension plans. Since these employees don’t contribute to Social Security through taxes, their annual covered earnings are zero for each year that they work at an uncovered job. As a result, a high-income worker with many years of uncovered employment would appear to have the same AIME as a worker with a lifetime of low-income employment.

Here’s an example: Worker A makes a steady, inflation-adjusted salary of $100,000 during his 35 years of employment, 10 of which were spent in the private sector. Worker B is a low-income worker in the private sector who makes $30,000 annually. The following graph shows their total lifetime earnings, split between covered and uncovered earnings.

Despite Worker A making nearly four times as much as Worker B, most of Worker A’s earnings are uncovered, meaning that the Social Security benefit formula treats them both as low-income earners and would provide them roughly the same level of benefits.

This formula also results in Worker A getting better treatment than workers with comparable earnings in the private sector. Worker A’s Social Security benefits would replace roughly 59% of his AIME, a relatively high replacement rate meant to assist low-income workers. In comparison, a worker who had the same average salary as Worker A in the private sector would only have a replacement rate of 36%. Without adjustments to the benefits formulas, the high-income public sector workers would be receiving a significantly higher return for each dollar of income on which they paid payroll taxes, representing an unjustified windfall.

 

The WEP and GPO remain imperfect solutions that disproportionately harm low-income government workers.

The WEP reduces the replacement rate that qualifying individuals receive for their first $1,115 of covered earnings. Rather than receiving 90% of the $1,115 in benefits, the replacement rate for government workers is as low as 40% depending on how many years of covered employment they have. The GPO applies complementary adjustments to spousal and survivor benefits.

This formula leads to proportionally larger benefit reductions for government workers with low AIMEs, leading critics to argue that it is regressive. Since the provisions only affect the earnings made up to the $1,115 of covered earnings, qualifying individuals who have a lower AIME lose a greater share of their total potential Social Security benefit because of these provisions than those who have an AIME over $1,115. For instance, a high-income worker who consistently makes an annual salary of $120,000 over 35 years and spent 10 of those years in the private sector would have their benefits reduced by 36%. On the other hand, a lower-income worker who spent 25 years paying payroll taxes and makes $45,000 a year would have their benefits reduced by 42% under the current law, despite paying into the Social Security program for a longer period.

Additionally, the current wage reduction is not an accurate method of adjusting benefits fairly. WEP and GPO were designed to adjust Social Security benefits so that they are relatively proportional to the length of time they paid into the program. A worker who worked in the private sector for 40% of their career should receive about 40% of the benefits that a worker with similar earnings would receive if they worked their full career in the private sector. However, when these provisions were passed in the 1970s and 80s, the SSA lacked adequate data to make precise adjustments. Instead, the provisions relied upon a roughly approximated formula that has led to benefits being over- or under-adjusted, depending on an individual’s distribution of covered and noncovered earnings.

 

Repealing the WEP/GPO would create new equity problems and threaten the fiscal security of the trust fund.

In response to criticism about the provisions, Members of Congress have proposed repealing both provisions in the Social Security Fairness Act, which has been garnered bipartisan support in both the House and Senate. However, despite the issues with the current formula, a complete repeal of the WEP and GPO would be costly and unfair to other Americans who paid into Social Security throughout their career.

Eliminating these two provisions would increase benefits for the 2 million individuals that have not sufficiently paid into Social Security through payroll taxes. Unlike individuals who have spent their whole careers in covered jobs contributing to the Social Security program, these individuals spent a portion of their career in jobs not subject to Social Security payroll taxes. As previously noted, they pay into pension plans during their time at uncovered jobs and upon retirement, receive pension benefits on top of Social Security benefits.

If these individuals began receiving non-adjusted Social Security benefits on top of the pension benefits, their total retirement benefits would replace a larger percentage of their lifetime earnings than the benefits of those who worked in covered jobs for their entire career. This outcome would run counter to the intention of the Social Security program, which is intended to provide low-income individuals the most support by replacing a higher percentage of their income.

Additionally, repealing the WEP and GPO would worsen the already financially insecure Social Security trust funds, which are slated to be exhausted after 2032. By increasing benefits for 2 million retirees, a complete repeal is estimated to cost $182.8 billion in ten years, pushing up the date of OASI and DI trust fund insolvency — and the 23% across-the-board benefit cut it would trigger for all beneficiaries — by six months to a year.

 

Proportional Social Security benefits would mitigate current issues with the WEP and GPO without providing uncovered employees an unjustified windfall.

To make the Social Security system more equitable, Congress should adjust the benefit reduction formula for public employees to more accurately account for their covered earnings. Now that the Social Security Administration collects data on non-covered earnings, the GPO and WEP should be reformed to keep in line with the initial intention behind the provisions. Congress should amend the benefit reduction formula to make reductions proportional to the ratio of an individual’s covered earnings to their total earnings, a solution previously proposed by Reps. Brady and Neal in the Equal Treatment of Public Servants Act of 2015. This proposal would apply the current benefits formula to the “Super AIME,” which is calculated with both covered and uncovered earnings. These benefits would, then, be adjusted by multiplying it by the percentage of total earnings that were covered.

Here are three hypothetical workers to demonstrate how the new proposal would work in practice:

 

The above table shows the hypothetical benefits that these three individuals would receive if a) the WEP and GPO were repealed, b) under current law, and c) under a proportional benefits formula.

Under the current law, the low-income public sector worker sees a larger cut in their Social Security benefits than the high-income public sector worker, reflecting the issue that the current formula has with accurately adjusting benefits. However, if the WEP and GPO are repealed, the high-income public sector worker’s benefits would be roughly the same amount as low-income workers. As discussed above, this means that the high-income public sector worker would be receiving an unjustifiably high replacement rate that similar workers in the private sector do not. In contrast, the proportional formula would adjust their benefits based on their length of covered employment. In this example, the low-income public sector worker, who spent double the time in the private sector paying payroll taxes, will receive more benefits to account for the different lengths spent in covered employment.

Private sector workers would not be affected by this reform. Their benefits, which have not been affected by the existing WEP/GPO provisions, would remain at the same level under the proportional system.

Ultimately, Social Security benefits should be updated to better reflect the original intentions of the WEP and GPO adjustments, as well as maintain its progressivity for public sector retirees. Reforming the program to make Social Security benefits proportional to the length of covered employment would allow all retirees, both covered and noncovered, to receive their fair share of benefits.

 

Ritz for Forbes: Why A House Bill To Prevent A Shutdown May Increase The Odds Of One

Posted on by The Progressive Policy Institute

By Ben Ritz

Congress is in chaos with just 10 days remaining to avert a partial government shutdown. Over the weekend, negotiators for the center-right Mainstreet Caucus and far-right Freedom Caucus agreed on a bill that would continue government funding at reduced spending levels after the fiscal year ends on September 30th. But nearly a dozen Freedom Caucus members are still refusing to support the deal, denying House Republicans the majority they need to pass their bill.

Counterintuitively, this failure of House Republicans to coalesce around a government funding plan may actually reduce the odds of a government shutdown at the end of the month if it persists. One need only look at previous government shutdowns to understand why this is the case.

Keep Reading in Forbes.

Ritz for Forbes: Why The Fitch Downgrade Should Be A Wake-Up Call To Washington — Even If It’s Wrong

Posted on by Alyssa Brown

By Ben Ritz

How concerned should policymakers and their constituents be about Fitch Ratings Agency’s decision to downgrade the United States credit rating from AAA to AA+ last week? The White House brushed it off, saying Fitch “defies reality” to downgrade U.S. credit at a time when the country is experiencing “the strongest recovery of any major economy in the world.” Meanwhile, leading Republicans say it’s a “a wake-up call to get our fiscal house in order before it’s too late.” The truth is: they’re both right.

On the fundamentals, this downgrade is perplexing because the federal government is no more likely to miss a bond payment today than it has been for the past decade. As the world’s largest economy and one that borrows in its own currency, there is little doubt the U.S. government has a greater ability to pay back its debts than any other entity on Earth. Both Fitch and Moody’s Analytics reaffirmed the AAA credit rating in 2011 even when formerly unprecedented debt-limit brinkmanship caused S&P to issue the first-ever downgrade of U.S. credit. Little has changed since then from a financial perspective — if anything, the U.S. economy is far stronger than it was 12 years ago, both in absolute terms and relative to other advanced economies.

But in another sense, the lack of any meaningful change in the government’s approach to fiscal policy from 12 years ago is exactly the problem. In 2011, the federal government was running an annual budget deficit equal to 8.4% of gross domestic product. This made sense at a time when the national unemployment rate was roughly 9% and expansionary fiscal policy was needed to support a weakened economy struggling to recover from the 2008 financial crisis. Today, the annual budget deficit is over 6% of GDP — roughly triple what it averaged in the 50 years before the financial crisis, even though unemployment today is lower than it was at any point over that period.

Read more in Forbes.

Ritz for Forbes: College Affordability Requires Cutting Costs, Not Canceling More Debt

Posted on by The Progressive Policy Institute

By Ben Ritz

The past two months have made clear that President Biden’s approach to making higher education more affordable isn’t working. First, bipartisan majorities of both the U.S. House and Senate voted to block his debt cancellation policies. Then, shortly after Biden thwarted that effort with his veto pen, the Supreme Court ruled that his attempt to cancel up to $20,000 of student loan debt per borrower was an illegal overreach of executive authority.

Biden responded to the setback by announcing two debt-cancellation schemes shortly after the Supreme Court issued its ruling. The first was the finalization of a new income-driven repayment (IDR) plan known as the SAVE plan. Biden also announced he would start a new process under the Higher Education Act to cancel more debt “for as many borrowers as possible, as fast as possible” through executive action.

Read more in Forbes.

PPI Urges Dems to Pursue More Responsible Higher Ed Policy After SCOTUS Cancels Debt Cancellation

Posted on by The Progressive Policy Institute

Ben Ritz, Director of the Progressive Policy Institute’s Center for Funding America’s Future, released the following statement in reaction to the Supreme Court’s decision to strike down the Biden administration’s attempt to unilaterally cancel up to $20,000 per borrower:

“The Supreme Court has officially ruled what we have known for some time now: U.S. presidents have no constitutional authority to unilaterally spend hundreds of billions of taxpayer dollars without Congressional approval. The Court’s decision comes after bipartisan majorities in both the Republican-controlled House and Democrat-controlled Senate voted to overturn the president’s attempt to unilaterally cancel over $400 billion of student debt.

“The message to the president from his co-equal branches of government couldn’t be clearer: it is time to move on from this misguided effort. Even if the president’s action were constitutional, there is no sound policy justification for asking Americans who don’t get the benefits of a college education to pay for the debts of those who do.

“We hope the White House will work with Congress on comprehensive solutions to ensure pathways to well-paying jobs are affordable and accessible for all. That means making real reforms to curtail the skyrocketing cost of college rather than using taxpayer funds to paper over the problem, expanding skills-based training options for non-degree students, and offering limited debt relief targeted only toward those most in need.”

PPI recently published a data-driven report on why the far left’s obsession with canceling student debt is deeply misguided and worsens the “diploma divide” in America.

PPI’s Center for Funding America’s Future works to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. It tackles issues of public finance in the United States and offers innovative proposals to strengthen public investments in the foundation of our economy, modernize health and retirement programs to reflect an aging society, and transform our tax code to reward work over wealth.

The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C., with offices in Brussels, Berlin and the United Kingdom. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.

Follow the Progressive Policy Institute.

Find an expert at PPI.

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Media Contact: Amelia Fox – afox@ppionline.org

Child Payments and a VAT Are Fairer than the So-Called “Fair Tax”

Posted on by Alyssa Brown

INTRODUCTION

Earlier this year, 31 House Republicans released a proposal to replace virtually all federal taxes with a 30% national sales tax. As other analysts have noted, a sales tax would be easy for companies to dodge and difficult for the government to enforce — meaning that to avoid revenue losses, the proposal would require a significantly higher tax rate, possibly as high as 60%.

The bill has also been criticized for being regressive. In tax terminology, a tax is “regressive” if it takes a higher share of income from the poor than from the rich; “flat” or “proportional” if it takes the same share of income from everybody; and “progressive” if it takes a higher share from the rich than from the poor.

The Republicans’ overall bill is certainly regressive and should be rejected on that account. But its core idea — taxing consumption rather than income — is not inherently regressive if properly designed. Much public commentary has mistakenly concluded that a national sales tax would fall predominantly on low-income Americans. But as this analysis demonstrates, taxes on spending fall on everyone roughly equally, and certain elements of the Fair Tax — such as its universal child payments — are actually progressive. While the Fair Tax ought to be rejected due to its regressive tax cuts and poor enforceability, two elements of it are worth keeping: its flat per-child cash payments and its emphasis on taxing spending rather than saving.

Read the full report.

PPI Urges Congress to Swiftly Pass President Biden’s Debt Ceiling Compromise

Posted on by The Progressive Policy Institute

Ben Ritz, Director of the Progressive Policy Institute’s Center for Funding America’s Future, released the following statement on the reported agreement-in-principle to raise the debt ceiling:

“Congress should immediately pass the debt limit increase and budget compromise negotiated by President Biden and Speaker McCarthy.

“On the one hand, this package does not represent our ideal policy. The decision to freeze spending only on domestic discretionary programs is backwards. This part of the budget funds critical long-term public investments in infrastructure, education, and scientific research. Meanwhile, taking both increased revenues and any cuts to other programs that comprise 85% of non-interest spending off the table in negotiations leaves our budget on a clearly unsustainable path. It is, at best, a punt on tackling our fiscal challenges.

“But on the other hand, this compromise is currently the only plausible way to take the threat of defaulting on the national debt off the table for the remainder of President Biden’s first term. Congress must pass it now, and in the future, lawmakers should seek out a better mechanism for encouraging fiscal discipline without calling into question our government’s constitutional obligation to repay its debts.”

PPI has consistently condemned the GOP’s efforts to take the full faith and credit of the United States hostage to extract ideological policy concessions. It has also supported the bipartisan Responsible Budgeting Act to end debt limit brinkmanship and create more sensible mechanisms for encouraging fiscal discipline.

PPI’s Center for Funding America’s Future works to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. It tackles issues of public finance in the United States and offers innovative proposals to strengthen public investments in the foundation of our economy, modernize health and retirement programs to reflect an aging society, and transform our tax code to reward work over wealth.

The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C., with offices in Brussels, Berlin and the United Kingdom. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.

Follow the Progressive Policy Institute.

Find an expert at PPI.

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Media Contact: Amelia Fox – afox@ppionline.org

Ritz for Forbes: Finding A Budget Compromise Despite Republican Extremism

Posted on by The Progressive Policy Institute

By Ben Ritz

Republicans have refused to raise or suspend the debt limit – which multiple independent forecasters have warned could cause the government to default on its debts for the first time in history as soon as June 1st – unless “substantive reforms” to federal spending are made. Biden spent most of this year refusing to indulge in the GOP’s hostage-taking but agreed to negotiate on a broader budget deal once Republicans made an opening offer. After Republicans coalesced around a position by passing the Limit, Save, Grow Act through the House, both sides began negotiations this week in the hopes of striking a deal that Republicans could claim is a precursor to raising the debt limit and Democrats could claim is independent.

Part of the challenge is that Republicans have entered into the negotiation with extreme positions that no Democrat could ever accommodate. The GOP’s bill would raise the debt limit through early next year and pair that increase with $4.5 trillion of spending cuts over the coming decade and other conservative policy changes. Cuts of this magnitude might make sense in the context of a balanced and comprehensive package that addresses all areas of the budget, including raising new revenues – particularly at a time when inflation remains high and our projected long-term debt growth is unsustainable. But the conditions Republicans have imposed to target these cuts are unrealistic at best and economically ruinous at worst.

Read more in Forbes

Five Tax Loopholes That Congress Should Close

Posted on by Alyssa Brown

Introduction

The federal tax code is riddled with provisions that benefit individuals and businesses working in certain sectors or engaging in specific activities. In 2019, these provisions — known as tax expenditures — cost the federal government 6.6% of gross domestic product (GDP) in lost revenue, which is greater than the amounts spent on Social Security (4.9% of GDP), Medicare (3.7%), national defense (3.2%), and the entire nondefense discretionary budget (3.1%). Although some tax expenditures help working-class people, 24.1% of their overall benefits go to the top 1% of income-earners, and 58.8% go to the top 20%. The regressive and economically inefficient nature of tax expenditures makes them a ripe target for progressive reform.

This isn’t to suggest that every expenditure helps special interests. For example, the earned income tax credit subsidizes the wages of low-paid workers and pulls four million Americans out of poverty every year. But according to the U.S. Treasury Department, the tax code is littered with over 160 expenditures, including highly regressive expenditures such as the mortgage interest deduction, the state and local tax deduction, the carried interest loophole, and the pass-through business loophole. These carveouts leave the federal government with a Swiss cheese tax code — one that fulfills its basic purpose but is littered with holes. Just as PPI has advocated a regulatory improvement commission to streamline economic regulations, the U.S. also needs to examine the many cracks and holes in the federal tax code.

A few large tax expenditures are already well-known. But most are quite small, and they survive largely by remaining out of sight and out of mind. They also sometimes benefit from lobbying efforts by well-connected industry leaders who prefer that their pet carveouts remain free from public scrutiny. This post, therefore, sheds light on five smaller tax expenditures — the types that don’t normally make the headlines — which ought to be eliminated to boost federal revenues and remove unfair loopholes. Specifically, Congress should:

 

  1.     Eliminate the percentage depletion deduction for certain fossil fuel producers;
  2.     Tax employee awards under either the personal income tax or the corporate profits tax;
  3.     Remove the special deduction for Blue Cross Blue Shield and certain other health insurance providers;
  4.     Eliminate the 5010 credit for wine and flavor additives in distilled spirits; and
  5.     Remove automatic partnership classification for companies that derive 90% or more of their income from fossil fuels and other depletable natural resources.

 

These five changes, if enacted by themselves, would raise just under $31 billion over 10 years. But more importantly, these five arcane loopholes are just the tip of the iceberg — policymakers who are willing to take a deeper dive into the tax code will find even greater savings hidden under the surface.

 

READ THE FULL POLICY BRIEF HERE

PPI Statement on President Biden’s FY 2024 Budget Proposal

Posted on by The Progressive Policy Institute

Ben Ritz, Director of the Progressive Policy Institute’s Center for Funding America’s Future, released the following statement on President Biden’s new budget proposal:

“With inflation still running high and the national debt on track to break its historical record as a share of economic output three years sooner than projected last year, both parties should be working together to improve our nation’s finances. We thus applaud President Biden’s decision to call for nearly $3 trillion of deficit reduction over the next decade in his Fiscal Year 2024 budget proposal to Congress — a target that’s three times as ambitious as the one he set in his proposal last year.

“However, we are concerned that this budget does not really tackle the financial challenges facing Social Security and Medicare. The budget’s proposed reforms are largely limited to improving the solvency of Medicare Part A Hospital Insurance, which only finances about 40% of Medicare spending. They do so in part by diverting savings from the other components of Medicare, such as Part D prescription drug benefits, thereby making the broader budget’s financial problems harder to solve. And the proposal makes no meaningful attempt to improve the solvency of Social Security, which faces automatic benefit cuts of over 20% when its trust funds are exhausted in roughly a decade.

“If the president’s preferred approach — one on which he hasn’t even had to try to compromise with Republicans yet — can only close part of the projected funding shortfall for 40% of the smaller of our two biggest underfunded entitlement programs, that’s a clear sign more options must be put on the table. To strengthen the foundation of American retirement security and put our budget on a more sustainable trajectory, we urge the president to reconsider his blanket opposition to benefit reforms and tax increases that may hit some folks earning under $400,000 per year.

“We also challenge House Republicans to counter the president’s proposed budget with their own vision for our fiscal future. If they continue to rule out reasonable revenue increases and heed Donald Trump’s calls to take Social Security and Medicare off the table, Republicans will have no way to produce a plausible plan for reining in the growth of our national debt. Combined with their threats for debt-limit brinkmanship, such an approach would prove the GOP to be far more fiscally irresponsible than the administration.”

The Progressive Policy Institute (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. Learn more about PPI by visiting progressivepolicy.org.

Launched in 2018, PPI’s Center for Funding America’s Future  works to promote a fiscally responsible public investment agenda that fosters robust and inclusive economic growth. We tackle issues of public finance in the United States and offer innovative proposals to strengthen public investments in the foundation of our economy, modernize health and retirement programs to reflect an aging society, and transform our tax code to reward work over wealth.

Follow the Progressive Policy Institute.

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Media Contact: Tommy Kaelin – tkaelin@ppionline.org

Ritz for Forbes: Win or Lose, Executive Actions Like Student Debt Cancellation Should Face Judicial Review

Posted on by The Progressive Policy Institute

By Ben RItz

The Supreme Court will hear oral arguments this week on the constitutionality of President Biden’s attempt to cancel up to $20,000 in student loans per borrower via executive action last year. Many proponents of the move, including the Biden administration itself, have argued that not only is the move itself legal but that it is wrong for the courts to even entertain the pending challenges to its legitimacy. Whether one thinks the plan itself is lawful or not, everyone should be grateful that the courts are so far rejecting this argument and taking a serious look at the merits of the plan itself because failure to do so could have catastrophic long-term implications.

The Biden administration says that it has the authority to grant mass debt cancellation under the HEROES Act: a law passed in 2003 that gives the Secretary of Education authority to adjust the terms of any loan it holds during national emergencies. The law was introduced to make it easier to discharge debt for victims of terrorism and veterans who were injured or killed fighting the War on Terror, but the Biden administration argues that the law’s text gives them broad discretion to provide relief for anyone who lived through the COVID-19 pandemic.

Several lawsuits claimed this broad interpretation was an abuse of the HEROES Act authority that went well beyond Congress’s intent in passing the law. The answer to this legal question has serious implications for our constitutional system, which entrusts Congress with the power of the purse. If allowed to proceed, Biden’s debt cancellation move would cost taxpayers over $400 billion. That would be one of the biggest expenditures of public funds without explicit Congressional appropriation.

Read more in Forbes.

Ritz for Wall Street Journal: Biden Shouldn’t Rule Out a Social Security Commission

Posted on by The Progressive Policy Institute

By Ben RItz

The Biden administration has sensibly rejected attempts by some far-right Republicans to hold the full faith and credit of the U.S. hostage in exchange for spending cuts. The administration now must show it will be open to good-faith budget negotiations after the impasse over the federal debt limit is resolved.

Unfortunately, the White House made a bad call last week, when spokesman Andrew Bates referred to the idea of a bipartisan commission that would make recommendations to shore up the solvency of Social Security and Medicare as “a death panel.” This throwback to Sarah Palin’s 2009 attack on the Affordable Care Act is as wrong now as it was then. President Biden should reconsider his administration’s stance.

Social Security and Medicare are the foundation of American retirement security—and they are in jeopardy if Congress doesn’t act. Both programs spend more on benefits than they raise in dedicated revenue. When their trust funds are exhausted, current law requires that benefits automatically be reduced to the level that can be paid with incoming revenue. That day is coming: According to the Congressional Budget Office and the programs’ trustees, it could be as soon as 2028 for Medicare Part A Hospital Insurance and 2033 for Social Security.

Read more in Wall Street Journal. 

PPI Comment on proposed Dept. of Ed rule: “Improving Income-Driven Repayment for the William D. Ford Federal Direct Loan Program”

Posted on by Alyssa Brown

PPI has long supported the expansion and reform of income-driven repayment programs that directly tie debt cancellation to a borrower’s ability to pay. Considering the high cost of a college education today, we believe policymakers ought to target relief to borrowers who are stuck with the debt of pursuing a degree without being able to reap the financial benefits of attaining one.

Accordingly, PPI was encouraged when the administration announced efforts to simplify and expand income-driven repayments. The current proposal should be commended for streamlining the array of repayment options, many of which have complicated terms and lengthy processes that deter enrollment by borrowers who would benefit, while also automatically enrolling eligible borrowers in an IDR plan. Additionally, the rule would offer new benefits for low-income borrowers with high loan balances. PPI supports efforts to make IDR more accessible, help distressed borrowers, and ensure affluent college graduates still pay their fair share for the benefits their degrees confer.

However, we are concerned that the proposed expansion is overly aggressive. Below is an analysis we submitted as part of the public comment period that shows the proposed rule will likely turn income-driven repayment from a safety net for vulnerable populations into a broad-based subsidy that Congress never intended. PPI estimates that a typical college-educated worker enrolled in the reformed program would only pay 2.5% of their income in student loan payments over 20 years, after which point the remaining balance would be forgiven. As a result, they would only end up paying three-fifths of the amount they initially borrowed, and not a dollar of interest.

With such generous terms for the average borrower, the new proposal is likely to become the new normal for most college students. Even families that can afford to save and pay for school with cash are likely to borrow money with such a generous subsidy for the vast majority of students. We are not alone in our findings: the Penn Wharton Budget Model and Adam Looney of the Brookings Institution both estimate that over 70% of college attendees would enroll in the revamped program. Whether it is through higher future taxes or inflation, workers who don’t have the opportunity to benefit from a college education will be stuck footing the bill for those who do.

By providing such a large and broad-based subsidy, the proposed changes would also encourage colleges and universities to avoid making the tough choices needed to contain costs, and would enable them to keep hiking tuition and fees faster than the growth in incomes and other prices. For these reasons, independent estimates have found that the cost increase associated with this proposal is likely to be between three and ten times as much as the $128 billion estimated by the Department of Education. It would also

Our comment urges the Department to delay implementation of this rule until it has conducted a more thorough estimate of the proposal’s cost to taxpayers and the impact it would have on the higher education financing system. It is our hope that the proposal is refined to be more carefully targeted toward those borrowers who leave college with low incomes and high debts. Insofar as higher education suffers from structural problems such as runaway tuition hikes, those are issues for Congress to address. Overly aggressive expansion of income-driven repayment is not a solution for structural financing problems, and as we have demonstrated, is likely to make them worse.

Read the comment on the proposed Department of Education rule.

PPI on the SOTU: The Economy

Posted on by The Progressive Policy Institute

Biden’s SOTU Needs a Fiscal Policy Pivot

President Biden’s State of the Union address comes at a turning point for the economy. Although fiscal stimulus was right for the economy in the depths of a pandemic recession, continuing to pursue legislation and executive actions that increase rather than reduce deficits undermines the Federal Reserve’s progress in controlling inflation. After a midterm in which a plurality of voters in exit polls ranked inflation as their number one concern and gave Democrats poor marks for their handling of it, Biden should use his speech to show that he will do the hard work to regain credibility on the issues of responsible fiscal management and inflation control. One way he could do this is by announcing a commission to review the recovery response and how policymakers can better address recessions and inflation in the future, which is an idea first proposed by PPI and endorsed in the New Democrat Coalition’s Inflation Action Plan last year.

The president also needs to lay a clear marker for the upcoming fight over the federal debt limit. He is right not to reward Republican hostage-taking with the full faith and credit of the United States. But with annual interest payments on the national debt set to eclipse defense spending by 2030 and Social Security by 2050, Biden should outline a process for better budget negotiations, such as the Responsible Budgeting Act and the TRUST Act, that he is willing to engage in good faith after Republicans take the threat of default off the table. Getting our fiscal house in order would help control inflation today and boost economic growth over the long term.

Finally, Biden should offer a real plan for making access to higher education affordable for all Americans. With the Supreme Court likely putting his attempt to enact roughly half a trillion dollars of mass student debt cancellation by executive action on ice, it’s not enough to simply blame “partisan lawsuits” for his inability to reduce costs and expand access in a responsible and sustainable way. He should challenge Congress to strike a “grand bargain” on higher education and workforce development that controls costs and expands opportunity for workers across the income distribution. This includes both forcing colleges to get more cost-effective and finding new pathways to good jobs for non-college educated workers.

This post is part of a series from PPI’s policy experts ahead of President Biden’s State of the Union address. Read more here. 

Ritz for the Peter G. Peterson Foundation: Opportunities For Bipartisan Fiscal Policy In 2023

Posted on by The Progressive Policy Institute

By Ben Ritz, Director of PPI’s Center for Funding America’s Future

Bipartisan coalitions of lawmakers joined together to pass more major legislation in the 117th Congress than any other Congress in recent memory, including the biggest investment in American infrastructure in over half a century, proving that bipartisanship in Washington isn’t dead yet. Unfortunately, the net impact of all executive actions and legislation approved over the last two years increased budget deficits by $4.8 trillion over the 10-year window. Although some stimulus was needed coming out of the Covid pandemic recession, this level of spending helped push inflation to its highest level in over 40 years and put our fiscal policy on an even more unsustainable trajectory than it already was.

The Federal Reserve is primarily responsible for restoring price stability, but sound fiscal policy can make it easier for the Fed to bring inflation down without pushing the economy into a recession. Even more important than what fiscal policy does today is the path it sets us on for the future: the Congressional Budget Office projects annual interest payments on the national debt are currently on track to exceed total spending on national defense by 2030 and surpass Social Security as the largest item in the federal budget by 2050. The problem will only get worse if additional deficit spending forces the Fed to raise interest rates even higher.

Read more on the Peter G. Peterson Foundation website.