In the book titled “Building a More Resilient US Economy,” released by the Aspen Economic Strategy Group, a stark reality comes to light – the US economy is far more fragile than most lawmakers are willing to admit.
Fragile US economy
In Harvard economist Karen Dynan’s analysis, it would require $2,400 per year/American through spending cuts or tax increases to stabilize the national debt.
Dynan’s extensive research sheds light on the reasons behind the looming fiscal crisis. The bulk of the structural deficit increase can be attributed to higher spending on Social Security and Medicare benefits, a consequence of the retiring Baby Boomer generation.
To stabilize public debt as a percentage of the economy, Congress would need to adopt a combination of spending cuts and tax increases equivalent to 2.8% of GDP or nearly $800 billion annually.
Inadequate political momentum
Despite the fiscal red flags, political momentum is inadequate to address the deficit at the required scale. The Republicans are keen on extending the Trump-era tax cuts set and have rebuffed President Biden’s claims regarding potential cuts to retirement programs.
Their commitment to reducing the IRS budget caused concern among experts who believe that it will exacerbate the deficit by reducing tax collections.
On the other hand, the Biden administration has ruled out tax increases for households earning less than $400,000, with their budget proposing an average annual deficit reduction of $250 billion.
The problem – Politics
In the words of Karen Dynan, “The challenge posed by high and rising federal debt is significant but manageable as a matter of economics. The big problem is political.” She emphasized the dire need for elected leaders to communicate the facts while acknowledging that this task has not been fulfilled to date.
The big question is — can the nation’s leaders rise to the challenge and address this mounting fiscal crisis?
Cover Photo: Unsplash