| 2024: | 99% |
| 2054 (baseline): | 166% |
| 2054 (PPI “Paying for Progress” budget blueprint): | 48% |
PPI’s 160-page budget blueprint, out last week and entitled Paying for Progress, assesses the next 30 years’ fiscal choices — taxes of all kinds, debt buildup and interest payments, health and retirement programs, national defense and “America in the world,” bridge repair and fiber-optic cable deployment, “discretionary” spending on everything from housing and science to pre-kindergarten and apprenticeship — proposes lots of ideas, and opens with a warning about the future of American government:
“Every election, we choose leaders who are supposed to levy taxes and use the revenues they collect to fund programs that benefit society as a whole. The principle that our leaders allocate public resources consistent with the values of the people who elect them is often known as “fiscal democracy.” Regrettably, in the United States today, fiscal democracy has deeply eroded.”
Authors Ben Ritz and Laura Duffy give us a way to measure this, by tracing the share of budgets that are mandatory and automatic — that is, interest payments and entitlement programs — and the share that’s ‘discretionary’ over time. A generation ago in 1994, the ratio was 63% mandatory to 37% discretionary. Now it is 73% mandatory, and 27% discretionary. And assuming no change, according to the August Congressional Budget Office, by 2054 it will be 82% to 18%. CBO also believes that in this “no-change” scenario, we will be spending 6.3% of annual national income — more than goes to Social Security, Medicare, or any other budget “line” — simply to pay down the national debt.
In more human terms, this November’s 18-year-old first-time voters will be middle-aged parents and homeowners in 2054. The 82%-to-18% ratio means their taxes will overwhelmingly go to their parents’ retirement costs and interest payments, with a bit for national defense. Their ability to make other choices — tax rates, road-building, new telecom technologies to replace today’s fiber-optic cables and satellites, help for the poor, arts and environmental quality, international programs from PEPFAR to Peace Corps and embassy security, scientific research, workforce development — will be small and cramped. One likely consequence is to further inflame the already great temptation to shift the electoral debate away from practical choices and into emotional culture wars. Another, again per the Congressional Budget Office, is that the 166% debt-to-GDP ratio in 2054 implies a fall of $5,400 in our 18-year-old’s income (in today’s dollars, using CBO’s per capita income projection) relative to the level it would reach were the current 99% ratio simply stable for 30 years.
PPI’s budget shows the way to do better, by (i) shifting taxation from work and investment towards consumption and unearned income; (ii) controlling “mandatory” spending by reversing debt buildup and saving costs on retirement; and while doing these things (iii) restoring the ability for a disciplined government to be an activist government. One among seven center-right-to-left think-tank blueprints* commissioned by the Peterson Foundation last fall, PPI’s plan is distinctive for three big results:
Fiscal democracy restored: Mixing savings in some areas, process and enforcement reforms in others, and thorough revision of the tax system, PPI’s plan by 2054 places the mandatory/discretionary spending ratio at 62%/38%, more or less the level of the mid-1990s and the most balanced ratio among the seven plans. The result puts discretionary spending at 6.5% of GDP, the highest among the seven plans, and sufficient to give the Americans of 2054 the chance to choose both an activist government and a low-debt government.
Interest burden reduced: Through tax reforms, savings in spending, and efficiency and process reforms, PPI’s plan brings the debt/GDP ratio down from today’s 99% to 48% in 2054. This debt level, last seen in 2009, is about the same as that achieved during the 1990s boom. The 48% ratio is easily the lowest among the seven plans; those in the other six range from 59% to 118%. The lower debt burden under PPI’s plan reduces interest payments by almost 75% (relative to CBO’s “baseline” projection), freeing up resources for other public purposes.
Tax policy made fairer, cleaner, and more pro-growth: To pay for the restored fiscal democracy lower debt/GDP ratio, and the reduced interest burden, PPI proposes a thorough revision of tax policy, fundamentally based on reducing taxation of work, shifting taxation towards consumption and pollution, and encouraging progressivity. This includes canceling the payroll tax and replacing it with a value-added tax and a carbon tax; replacing the antiquated estate and gift tax with a progressive inheritance tax; and replacing several regressive and inefficient tax expenditures, such as the state and local tax and college savings deductions, with better-targeted grant programs. Alone among the seven plans, PPI’s blueprint also looks hard at the tariff system, reducing hourly-wage families’ cost of living and stopping selective taxation of goods-using industries — e.g. manufacturing, retail, construction, farming — by cutting away most Trump-era tariffs and pre-Trump tariffs on industrial inputs and consumer goods not made in the United States.
In sum, a very ambitious plan with a lot of ideas: a restoration of eroded fiscal democracy; a shift in taxation from work to consumption and unearned income; a vote for disciplined but activist government; and a hope to lighten the burdens now accumulating upon hourly-wage families and this year’s young voters.
* In alphabetical though not ideological order, the American Action Forum, the American Enterprise Institute, the Bipartisan Policy Center, the Center for American Progress, the Economic Policy Institute, and the Manhattan Institute.
PPI’s Budget Blueprint.
… From the New Liberal podcast, budget authors Ben Ritz and Laura Duffy explain.
… Ritz in Forbes.
… and the Peterson Foundation compares and contrasts PPI’s approach with 6 other plans.
And for those wanting a bit more tariff background:
Ed Gresser on inclusivity, regressivity, and bias in tariff policy.
Elaine Wei explains how, uniquely in the world, U.S. clothing tariffs tax women’s clothes higher than directly analogous men’s clothes.
Reps. Lizzie Fletcher (D-TX and New Democrat Coalition Trade Task Force Chair) and Brittany Pettersen (D-CO) introduce the Pink Tariffs Study Act, directing the Treasury Department to review the tariff system for gender bias and regressivity.
And the Trump campaign’s Depression-like tariff proposal.
