Toward a Fiscally Responsible Economic Growth Agenda THE CONCORD - PowerPoint PPT Presentation


 Toward a Fiscally Responsible Economic Growth Agenda THE CONCORD COALITION www.concordcoalition.org 
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Background to Debt Discussion Kent Smetters \ October 3, 2019

Talking Points 1. Debt still matters • Demographics and globalization has lowered cost of borrowing per dollar. • Total borrowing has already increased. 2. Measure debt holistically • Traditional debt measure misses young-to-old transfers (implicit debt) 2

Favorable Rates Expected Real Expected Real Corporate Gov’t Borrow Year Return (R e ) Rate (R f ) 2020 5.39% -0.23% 2021 5.37% -0.01% 2022 5.15% 0.17% Definitions: 2023 5.25% 0.39% • R e : Real (after-inflation) after-tax corporate equity return, before household taxes. 2024 5.43% 0.55% • R f : Real (after-inflation) duration-weighted risk-free rate. 2025 5.58% 0.69% ● ● ● ● ● ● 2030 5.58% 1.06% ● ● ● ● ● ● 2035 5.86% 1.17% ● ● ● ● ● ● 2040 6.10% 1.21% 3

Change in Debt-GDP ratio, baseline and policy change Debt-GDP ratio 200% Experiments: hold debt- Baseline GDP ratio at 2019 level on Tax increase, dynamic a conventional basis: 175% Spending cut, dynamic • Linear income tax increase. 150% • Cuts in non-entitlement and “non-productive” 125% spending. 100% Differences in debt-GDP ratios then emerge on a 75% dynamic basis since each experiment has a different 50% impact on GDP. 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 4

Tax Changes Required for Stabilizing Debt-GDP Ratio After tax income, percent change Tax rate changes 2020 2030 2040 Year Change 20-40% 40-60% 60-80% 80-90% 90-99% Top 1% 20-40% 40-60% 60-80% 80-90% 90-99% Top 1% 20-40% 40-60% 60-80% 80-90% 90-99% Top 1% 0-20% 0-20% 0-20% 2018-2019 Current law 2020-2025 Current law rates + 7pp’s 0% 2025-2034 Current law rates + 9 pp’s -1% 2035-2050 Current law rates + 8 pp’s Note: “pp’s” means “percentage points” -2% -3% -4% -5% -6% -7% -8% 5

Changes in Key Indicators 2030 2040 2050 Economics (% change from baseline) Increase taxes on ordinary income Output -0.4% 0.7% 2.7% Capital 2.0% 3.7% 9.0% Labor input -1.5% -0.8% -0.4% Reduce government spending Output 1.1% 3.1% 6.1% Capital 3.5% 8.8% 17.7% Labor input 0.0% 0.2% 0.6% Debt-GDP ratios Baseline 117% 155% 190% Increase taxes on ordinary income 83% 83% 79% Reduce government spending 81% 80% 74% 6

US Treasury $ $ Counted as official debt. $ $ Not counted. Social Security 7

Example: “Social Security 2100 Act” 8

“Social Security 2100 Act” (September, 2019 PWBM Update) 9

“Social Security 2100 Act” (September, 2019 PWBM Update) Relative to debt financing of Social Security shortfalls, many reforms (payroll tax increase, benefit cuts, or some combination) increases capital services and GDP. Larson Bill actually reduces capital and GDP. Why? (i) it eliminates explicit debt by increasing pay-as-you-go obligations (implicit debt) by even more; (ii) donut hold tax largely delinks tax from benefits, increasing effective MTR on labor. 10

CRFB.org

We Need to Save Social Security Soon Percent of Benefits 450% 400% 350% Combined 300% Trust Funds 250% Trust Fund Depletion, 200% 21% Benefit Cut in 2035 150% 100% 50% 0% 1990 2000 2010 2020 2030 2040 2050 Source: 2019 Social Security Trustees’ report. CRFB.org 2

If You are 62 Today… CRFB.org 3

If You are 50 Today… CRFB.org 4

If You are 22 Today… CRFB.org 5

If You are 2 Years Old Today… CRFB.org 6

Saving Social Security Can Grow the Economy Ultimate GNP Impact 9% 8% 8% 7% 6% 5% 4.5% 4% 3% 2% 1% 1% 1% 0.25% 0.25% 0% Pro-Growth 2013 Natural Gas 2017 Tax Law Ending the $2 Trillion Social Security Immigration "Fracking" (TCJA) Trade War and Infrastructure Reform Bill Passing TPP Investment Sources: Authors’ estimates, CBO, JCT, U.S. International Trade Commission, and Penn Wharton Budget Model. CRFB.org 7

Saving Social Security Could Boost Income by $8,000 Per Person Additional GNP Per Capita in 2019 Dollars $9,000 $7,800 $8,000 $7,000 $6,000 $4,600 $5,000 $4,000 $3,000 $2,200 $2,000 $1,000 $0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 Source: Authors’ calculations based on CBO data. CRFB.org 8

Saving Social Security Can Grow the Economy 1. Promote Delayed Retirement and Productive Aging by increasing Social Security’s retirement ages while insulating vulnerable workers with an Age 62 Poverty Protection Benefit (62-PPB) 2. Reward Work at All Ages by counting all years of work toward benefits based on each year’s earnings rather than average 35-year lifetime earnings (“mini-PIA”) 3. Increase Savings and Investment by automatically enrolling workers in add-on “Supplemental Retirement Accounts” (SRAs) unless a worker opts out 4. Reduce Debt and Improve Certainty by making Social Security sustainably solvent through a mix of progressive revenue and benefit adjustments CRFB.org 9

Rethink Retirement to Improve Wealth, Health, Happiness, and Economic Growth The Old Model – One-Size-Fits-All and Binary Career Retirement Early Retirement: Permanently Reduced Income The New Model – Multiple Options and Paths Continue working Bridge Job Part-Time Consulting Delayed Career Retirement Retirement Encore Career Phased Retirement Early Retirement: CRFB.org Poverty-Protected Income

Reward ALL Years of Work Equally 11

Increase Savings to Boost Investment Percent of Gross National Income 14% 12% Net Domestic Investment 10% 8% 6% 4% 2% Net Savings 0% 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 -2% -4% Source: FRED. CRFB.org 12

Restore Solvency to Reduce Debt and Uncertainty 160% Debt Held by the Public as a Percent of GDP 160% 150% Current Law With Social Security Reform 140% 135% Assuming Pro-Growth Effects 130% 120% 115% 110% 100% 90% 80% 70% 60% 2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050 Source: Authors’ calculations based on CBO and SSA data. CRFB.org 13

BUILDING A PRO-GROWTH LEGAL IMMIGRATION SYSTEM Ja Jacq cqueline Vara ras October 3, 2019

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VISA GRANTING SYSTEM To qualify for permanent legal status, applicants must have 70 points or more. 3 AMERICAN ACTION FORUM

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Boosting Federal R&D to Drive Productivity and GDP Growth Dr. Robert D. Atkinson President, ITIF October 3, 2019 @RobAtkinsonITIF @ITIFdc

About ITIF § One of the world’s top science and tech think tanks § Formulates and promotes policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress § Focuses on a host of issues at the intersection of technology innovation and public policy: – Innovation processes, policy, and metrics – Science policy related to economic growth – E-commerce, e-government, e-voting, e-health – IT and economic productivity – Innovation and trade policy 2

U.S. Economic Growth from Different Productivity Rates Source: Why Federal R&D Policy Needs to Prioritize Productivity to Drive Growth and Reduce the Debt-to-GDP Ratio, ITIF 2019 3

The U.S. is in a Deep Productivity Rut 3.50% 3.24% 3.00% 2.71% 2.50% 2.00% 1.54% 1.50% 1.34% 1.00% 0.50% 0.00% 1947-1973 1973-1995 1995-2008 2008-2018 4

R&D and Innovation Are Key 5

Thank You! Robert D. Atkinson | ratkinson@itif.org | @RobAtkinsonITIF @ITIFdc

Training for Jobs of the Future: Increasing Access, Certifying Skills, Expanding Apprenticeship Robert I. Lerman, Pamela Loprest and Daniel Kuehn Urban Institute Prepared for the Concord Coalition Project on Fiscally Responsible Growth , October 2019

Incremental approaches within existing structures Improving access to quality training through: Better Information , such as an app with local labor market information, signaling quality through gainful employment regulations, and making credentials transparent Through online technology , using sites such as Southern New Hampshire University’s College for America; Ensuring quality is critical; research suggests online education is lower quality Through changes in funding sources Expansion of public funding for training, including making Pell grants available to short-term training programs, Lifelong learning accounts, increasing WIOA and TAA funding