Kent Smetters, Dean of Budget Models at Penn Wharton, joins Barney & Company to discuss how the national debt can be reduced if research-based analysis is conducted.
A new analysis from the bipartisan Penn Wharton Budget Model outlines policies that: reduce federal debt At the same time as promoting long-term economic growth, the incoming Trump administration will face policy debates over taxes, spending and debt next year.
The federal government has several key policy deadlines in 2025, starting with the suspension of the debt ceiling, which ends in January, and requires Congress and President-elect Trump to raise the debt ceiling to avoid default. It turns out. Discretionary spending caps are set to expire in September, when fiscal year 2025 ends, while some Trump-era tax cuts are scheduled to be repealed at the end of next year.
As these deadlines overlap, policymakers will face debates over how to deal with huge national debts and rising spending, as well as how to reset tax policy. of Penn Wharton budget model policy map It focuses on four areas: simplifying the tax code, reducing tax distortions, implementing taxes to address negative externalities, and strengthening the long-term solvency of Social Security and Medicare.
“A common misconception is that significant debt reduction economic growth Or a social safety net. “We show this is wrong,” write analysts at Penn Wharton Budget Modeling, “reforms here will produce sustained debt reduction, grow the economy, and reduce carbon emissions.” “retirees,” almost completely closing the current disparity in health insurance for working-age people, and reducing poverty among the nation. ”
US national debt hits new record: $36 trillion
Analysis of the Penn Wharton budget model suggests that it is possible to reduce the national debt while promoting economic growth. (license/image)
of Tax simplification Policies outlined in the Penn Wharton Budget Model (PWBM) analysis include taxing capital gains and dividends at ordinary income tax rates and taxing capital gains on death without an increased basis starting in 2025. That is included.
It expands the employment tax base to cover all pass-through income, prohibits all itemized deductions except charitable deductions, and removes the income exclusion of employer-sponsored health insurance premiums from taxable income. , will introduce a mandatory health savings account that can cover up to $3,000. Self-pay for annual medical expenses.
The PWBM diagram would replace the standard deduction and personal deductions with partially refundable tax credits, lower the top income tax rate from 37% to 28%, and create no higher marginal tax rate.
Includes $50 per ton carbon tax Starting in 2025, we will start reducing coal, oil and natural gas products, which we estimate will reduce greenhouse gas emissions by 7% in the short term and by almost 16% by 2054.
PWBM analysis lowers the top marginal tax rate and simplifies the tax code while enacting a carbon tax. (license/image)
Social security crisis: CRFB says beneficiaries face 21% benefit cut without reform
PWBM's analysis points out that America's aging population is putting pressure on public finances. social security The same goes for Medicare, as retirees live longer and there are relatively fewer working-age households to support more retirees. This suggests that the United States cannot rely on economic growth alone to stabilize the finances of these programs and that policy reforms are needed to achieve that.
“The United States cannot grow in a way that overcomes the shortfalls facing these two major mandatory spending programs. Spending for both programs is explicitly or implicitly indexed to growth. “Both programs significantly reduce savings accumulation and reduce work incentives,” PWBM said.
Among the policy changes: Full Benefit Social Security Retirement Age The transition from age 67 to 70 will be phased in between 2037 and 2056, so it will not affect individuals over 50 in 2025. New minimum and maximum benefits will also be introduced in 2037.
The full Social Security retirement age is scheduled to be gradually raised in 2025 for individuals under age 50. (Kevin Dietsch/Getty Images/Getty Images)
Economist proposes bipartisan plan to avert financial crisis by stabilizing America's soaring national debt
of Medicare eligibility age It will also be increased from 65 to 67 under the diagram, with the changes expected to be fully phased in by 2036. It would also transform Medicare into a premium-subsidized system where the federal government pays premiums and beneficiaries choose from a variety of insurance plans.
Because the U.S. population is projected to decline without immigration and current immigration levels are insufficient to address the narrowing gap between workers and retirees, PWBM analyzes include doubling the number of immigrants. It included things to do. legal immigration Require all immigrants to purchase unsubsidized health insurance each year.
Overall, PWBM found that the policies included in the analysis would boost GDP by 21% over 30 years compared to current law and raise wages by nearly 7% over that period compared to current law.
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private health insurance premium A 27% reduction over 30 years compared to current law, as immigrants are required to purchase private health insurance to reduce moral hazard and the insurance pool is expanded to younger, healthier people. Become.
Federal debt held by the general public currently amounts to 99% of U.S. GDP and is projected to rise to 166% of GDP by 2054, 37.8% lower than the 2054 projection based on PWBM analysis. It will be.
