To Fight Inflation, More Deficit Reduction is Better
In recent weeks, lawmakers have been negotiating a reconciliation package that would include roughly $1 trillion of revenue and health savings along with $500 billion of new spending and tax breaks for climate and other purposes. Negotiations apparently ended last week, with policymakers now pursuing a package that includes drug pricing reforms and a two-year extension of the expanded Affordable Care Act subsidies.
The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:
The Committee for a Responsible Federal Budget believes policymakers should continue to pursue a larger deficit reduction package in order to begin to address the $24 trillion national debt and help the Federal Reserve fight inflation. While it is primarily the Fed’s responsibility to combat inflation, the severity of the moment means fiscal policy should be pushing in the right direction as well.
While prescription drug reforms will help fight inflation, additional deficit reduction from new revenues and spending cuts can assist in bringing inflation down further. Additional deficit reduction would also help put the national debt on an improved trajectory.
The smaller package being discussed would pair drug pricing reforms with a two-year extension of the expanded Affordable Care Act subsidies that were put into effect temporarily under the American Rescue Plan. This package would reduce the deficit by nearly $250 billion over a decade, or $70 billion if the expanded ACA subsidies were continued for the whole decade without offsets.
The package would be an important step in the right direction, lowering household drug costs while also slowing Medicare cost growth. It is notable and praiseworthy that this would be the first meaningful deficit reduction package to pass since the Budget Control Act of 2011.
However, the savings in the bill would only cover a fraction of the borrowing from deficit-increasing actions in the works – such as expanded veterans benefits, micro-chips funding, and student debt forgiveness – and wouldn’t come close to covering the borrowing from recent actions like the bipartisan infrastructure law, the 2022 omnibus appropriations law, and a slew of executive actions. The insurance subsidy extensions in the plan would also rely on the same type of arbitrary expirations that were rightly criticized in previous versions of the bill while worsening the deficit in the first two years.
Policymakers could enact further deficit reduction and more permanent health policy – along with new energy and climate investments – by improving tax compliance, closing loopholes, and raising additional revenue.
Lawmakers should not abandon the $1 trillion of offsets and $500 billion of deficit reduction from the previous framework. If they feel the need to enact the health portion sooner, they could then proceed to pass a fiscal year 2023 budget resolution with further deficit reduction instructions for tax and climate legislation.
Enacting deficit reduction would help check debt and inflation, which is perhaps the most important thing Congress can do to reduce the risk of recession.
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