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Avoiding a US debt crisis is ‘economically easy,’ but politics stands in the way of urgent reform, research firm says
Article from Business Insider,
- The US could fund its deficits but political partisanship is in the way, Research Affiliates’ Chris Brightman wrote.
- Solutions include adjusting Social Security and implementing a national value added tax.
- If not fixed, debt-to-GDP is set to balloon, depressing growth and fueling inflation, he said.
The fiscal policies necessary to counter US overspending would be pretty simple to implement, if only there was political willpower to make it happen, Research Affiliates CEO Chris Brightman wrote on Thursday.
“Necessary fiscal reform is economically easy,” his note said. “Unfortunately, it’s politically difficult.”
Most or all of the federal deficit could be erased through adjustments to the Social Security program, as well as the introduction of a national value added tax, or VAT.
Specifically, the government could find needed funding by raising the retirement age for Social Security benefits, as well as raising maximum income on Social Security taxes.
Meanwhile, a nationwide VAT program could be enough to eliminate the US budget deficit by raising total tax receipts to a necessary level of 36% of GDP. Today, that figure stands at 32%, Brightman wrote.
At any rate, some sort of action is needed as US deficit and debt levels are unsustainable over the long term, he emphasized. Total federal debt recently topped an all-time high of $34 trillion.
“[R]ising debt levels would, at some point, increase inflation and interest rates as well as depress real growth, thus worsening deficits and growth of the debt,” he wrote, echoing similar alarm from Wall Street commentators. “To repeat, the current fiscal path is unsustainable.”
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Even the government’s own forecasts are flashing red. Brightman cited a 2022 Treasury Department report warning that fiscal policy had become unsustainable, and that debt-to-GDP would rise from 97% to 566% by the century’s end without any changes.
Similarly, the Congressional Budget Office expects the ratio to hit 181% by 2053.
But leaders have yet to show a willingness to fix this, as deficit spending is among the many policies D*******s and Republicans are misaligned on, Brightman said. This was made extremely apparent last year, when partisan disagreement over spending cuts nearly risked a US debt default.
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