Near- and Long-Term Fiscal Challenges for the Biden Administration
For Immediate Release
President Joe Biden takes office in the face of numerous economic and fiscal challenges. Although COVID-19 vaccine distribution is underway, the pandemic continues to spread, workers continue to lose their jobs, and the economy remains in a state of weakness. Meanwhile, the national debt is larger than the economy for the only time outside of World War II, while the Social Security, Highway, and Medicare trust funds are inching closer to insolvency.
Below is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:
The Committee for a Responsible Federal Budget welcomes President Biden and the new administration, and we look forward to working with them on the major economic and fiscal challenges facing the country.
The single most urgent issue continues to be the COVID-19 crisis. President Biden and Congress must work together to end the pandemic, support households and businesses through this period, and build a bridge to a strong economic recovery. Though Congress has authorized $4 trillion in fiscal support, we aren’t out of the woods yet. The most recent relief package will hopefully get us through the winter and give us time to determine what additional measures may still be needed.
While our national debt is large and approaching record levels, cutting off borrowing prematurely could do more harm than good. However, the need for more pandemic relief should not be used as an excuse to borrow too much or to spend money recklessly.
Any further deficit-financed package must reflect our economic, not political, needs. Its magnitude should be based on the size of the economic output gap, not the size of politicians’ wish lists. We don’t need aimless tax cuts or poorly-targeted fiscal relief, such as cutting capital gains taxes or canceling student debt.
Beyond the current crisis, Congress should restore the practice of paying for new policies and working to slow the unsustainable growth of our debt. As things stand, the national debt is on a course to almost double by 2050. Spending initiatives – same as tax cuts – won’t pay for themselves, even with low interest rates. Depending on the state of the economy, policymakers could consider frontloading new investments and phasing in offsets over time. Doing so could boost near-term output and long-term growth.
The other main fiscal challenge the president and new Congress must address is one lawmakers have spent years trying to ignore – the looming insolvency of some of the nation’s major trust funds. The trust funds for highway programs and Medicare Hospital Insurance will reach insolvency within this presidential term, and Social Security within the next decade. Allowing these trust funds to go insolvent – which would prompt sharp and sudden cuts – would create a serious and entirely avoidable fiscal calamity.
We must continue to put all the resources necessary into addressing the pandemic. But the earlier we can plan for budgeting responsibly and protecting our long-term economic and fiscal future, the better off we’ll be.
For the last several years, Congress has relied on tax cuts and borrowing in a healthy economy to delay making any of the hard policy tradeoffs that come with good governing. Hopefully once the pandemic is behind us and the economy has recovered, the new administration and Congress will get to work on making the hard fiscal choices that have been put off for far too long.
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