Economic PolicyPublic Policy Project

Dan Ozizmir, Andrew Ma, Patrick Feuerman, Ethan Stroud, Griffin Tiedy, Nic Caridi, Oliver Ostriker

Source 12

Overview of Federal Government’s Economic Policy

• Goals– Maximize GDP growth– Control inflation– Fund government– Regulate private

economy– Build public

infrastructure

• Tools (Budget and Laws)– Tax policy– Spending policy– Regulations– Tariffs

U.S. Federal Government has become more involved in the economy over time.

Sources 6, 14, 18

Legislation Shaping the Field

• Revenue Act of 1913– Implemented following the

ratification of the 16th amendment.• 16th amendment allowed federal

government to levy income taxes.

– Greatly increased federal tax revenue .

– Progressive tax:• High income earners are required

to pay higher rates.

Sources 9, 15, 17

Legislation Shaping the Field

• New Deal (1933-1938)– Greatly increased government involvement

in economy as a response to the Great Depression.

– Population looked to government for assistance and guidance.• Some programs include:

– Social Security Act– Securities and Exchange Commission (SEC)– Federal Deposit Insurance Corporation (FDIC)– Public Works Administration (PWA)

Sources 2, 8

Biggest Issue: National Debt

• Current debt: over $17 trillion.

• Increases in national debt generally occurred during wars.

• The Great Depression was a notable exception due to large amounts of public spending on infrastructure and job programs.

• Our National Debt reached 103% in 2013, which is the highest level besides WWII.

• There is a large disparity between entitlement spending costs and available tax revenue.

Sources 17, 19

Why is our Long-term Structural Deficit a Problem?

• Interest cost on debt will crowd out funding for other programs.– Less expensive to pay off debt before interest

accumulates.• Citizens will depend on future promises of

entitlements that are unsustainable.• Excessively high taxes will slow growth.• There is a risk of lower credit ratings and eventually

default.

Source 19

Drivers of debt are as simple yet inexorable

• Discretionary spending has been falling since the 1950s.• From approximately

15% to a long-term projection of around 8% of GDP.

• Entitlements programs are expected to reach 25% of GDP due to:• Expansion of benefits

over time.• Demographics: longer

life expectancy.

Sources 11, 14

Long-term Impacts of Bills Passed During the New Deal and Great Society

• Social Security Act of 1935:• Benefits expanded

over the years.• Disability insurance

added.• Medicare Act of 1965:

• Expanded over time.• Part B Prescription

Coverage.• Medicaid Act of 1965:

• Expanded by Affordable Care Act in 2010.

Source 17, 18

DemographicsLife Expectancy has increased from 53 to 78 since 1935 when the social security act was passed…

…creating a increased burden on Future workers

Source 5, 13

No Easy Way to Increase Revenue:-Growth is falling and total tax take is at historical highs-

Due to various factors, US GDP growth has fallen in the Post-War era Total tax take has increased over time

Sources 5, 7

Simpson Bowles Commission

• President Obama created the Simpson Bowles Commission in 2010; they proposed the following ideas:

• Increase Social Security retirement age and then index to life expectancy.

• Means-tested Medicare.• Increase Medicare premiums.• Reform disability program.• Tax reform to raise revenues

and reduce rates.

Sources 3, 4

Limited Public support for hard decisionsThe Public doesn’t make it easy for for politicians to make hard decisions.

Source 3

Political Choices-Prisoners Dilemma

• Democrats support spending, particularly entitlement programs.

• Republicans support lower taxes.

• Stalemate

Source 10

Only Long-Term Solution is to Run Budgetary Surplus

Compromise solution between Democrats and Republicans:• Higher taxes.• Lower spending.• Increased revenue and decreased costs can

bridge the gap between current deficits and our target of financial solvency.

Sources 7, 10

Proposed Implementation

• Increase retirement age and then index to life expectancy.

• Means-tested Medicare.• Increase Medicare premiums.• Broaden tax base and reduce

rates while increasing revenues.

• Immigration Reform: increasing growth and population will partially address demographic challenges.

• Review labor laws and practices that often push out older workers who may be willing to work part time or in reduced roles.

• Change budget scoring so that future liabilities are better accounted for.

Source 10

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