Washingtonian Policy and The Evolving Economy

Blog Post
Tuesday, May 14, 2019

The latest Facing the Future featured Robert L. Bixby, Josh Gordon and “Economist Mom” Diane Lim. They discussed potential tax extender legislation in Congress, a recent Congressional Budget Office (CBO) analysis concerning interest on the national debt, and how the country’s economy has changed.

Gordon, The Concord Coalition’s policy director, said Concord had joined 11 other organizations that spanned the ideological spectrum in writing a letter to congressional leaders asking them not to renew certain tax breaks, known as “tax extenders,” that expired in 2017.

So long after the expiration of those measures, he questioned the use of the term “extenders” and said Congress would merely be putting new, special provisions into the tax code for small, specific interests.

“We are always opposed to tax provisions of that kind because they are spending programs in disguise, yet without the scrutiny and tradeoffs that spending programs sometimes face,” Gordon said.

Approaching legislating with short-term provisions like tax extenders is a very “Washingtonian” way to think about public policy, meaning it is poor and inefficient, Gordon said.

Bixby, Concord’s executive director, discussed interest on the nation’s publicly held debt and a recent CBO analysis of the impact of that interest on the budget and fiscal policy. He said it cost the government approximately $325 billion last year alone, and such costs are projected to exceed spending on national defense by 2025.

CBO said interest rates have remained lower than expected, which Bixby said was a surprise coming out of the Great Recession because typically interest rates rise when the economy stabilizes and grows.

As a result of favorable interest rates, the government has been able to add a significant amount of debt without substantial growth in the cost of servicing that debt.

“Before the recession, the debt-to-GDP ratio was 39 percent and now it is roughly 78 percent,” he said. However, interest on the debt as a percentage of GDP has remained relatively flat during that time.

There is uncertainty as to what interest rates will do in the future, and that could have a major impact on the budget. CBO asked the question: What would have to be done with spending and tax policies in order to stabilize the debt-to-GDP ratio at its current level, even with low interest rates? “And that’s where it gets kind of eye-opening because it illustrates the huge problem that we have,” Bixby said.

“Low interest rates are not a magic bullet to get us out of this problem,” Bixby said. “Even assuming continued low interest rates, we have such a huge mismatch between spending and revenue that just stabilizing the debt-to-GDP ratio would take a huge deficit reduction plan of the size that no one is even talking about.”

At current interest rates, just stabilizing the debt would require a deficit reduction package of $1.8 trillion over the next 10 years.

Lim, a principal at the District Economics Group, discussed how the economy has changed in recent decades and ways the federal government needs to adapt. She said the fundamental change has been the nature of work in the U.S.

Many people do not work just one job or function in a traditional employer-employee relationship. Their incomes often come from more than one source.

A growing number of young people and middle-aged women are behaving in the labor market differently than in past generations, taking less traditional tracks, Lim said.

“We have a lot of people where they are working jobs for the experience, not the money,” she said.

More and more aspects of our economy do not follow the traditional market-based model, and Lim said that runs afoul of how economists have historically explained supply and demand in the labor market.

Access to health insurance, retirement benefits and government programs are impacted by these workforce changes, Lim said.

Plus, big federal programs like Medicare and Social Security are tied to the traditional payroll-based employment relationship, she said. Such federal programs were not designed to work optimally in this new economy.

“They have not evolved,” she said. “They’re stuck back in the ways that people used to work, decades ago.”

In upcoming Economist Mom segments, we will further discuss the role of government in this evolving economy and specific examples of programs, like the tax system, Social Security and health care, that need to change.

Hear more on “Facing the Future.” I host the program each week on WKXL, NHTalkRadio.com (N.H.), and it is also available via podcast. Join me and my guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders, elected officials and candidates for public office. Past broadcasts are available here. You can now subscribe to the podcast on iTunes, Google Play or through RSS.