This week on The Learning Curve, University of Arkansas Prof. Albert Cheng and guest co-host Alisha Searcy interview Tufts University Prof. Elizabeth Setren. Prof. Setren discusses her recent study of METCO, a pioneering voluntary school desegregation program under which Massachusetts students in Boston and Springfield are bused to surrounding suburban districts. She discusses METCO’s history, the academic performance of students in the program, enrollment challenges, long-term benefits, and disparities among students. She urges policymakers to make evidence-based policy decisions and calls for further research to enhance the program’s effectiveness.
Stories of the Week: Albert analyzed an article from Your Tango about a former principal’s declaration of how schools need to focus more on academics and less on behavioral issues; Alisha discussed an article from the Hechinger Report on federally-funded education innovation.
Guest:
Dr. Elizabeth Setren is the Gunnar Myrdal Assistant Professor of Economics at Tufts University. Before joining Tufts, she completed a post-doctoral fellowship at the National Bureau of Economic Research. Her research in the economics of education includes studying the academic impact of Boston’s charter schools, while her most recent work focused on the long-term effects of Massachusetts’ voluntary integration METCO program. Prof. Setren’s research has been covered by the New York Times, Wall Street Journal, Boston Globe, Boston Herald, The 74, NPR, and other national news outlets. Setren earned a B.A. in mathematics and economics with highest departmental honors, summa cum laude from Brandeis University, and received her Ph.D. in economics from MIT.
Tweet of the Week:
https://x.com/MargueriteRoza/status/1768414072507084890?s=20
Click here to read a transcript
Biden’s Budget Breakdown: Pragmatic Progress or Political Posturing
[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Last week, President Biden unveiled a budget plan totaling nearly 7 trillion in spending, with 5 trillion in estimated tax revenue, thus projecting a 2 trillion deficit. In response to concerns about escalating federal debt, the president’s representatives have reassured the public that the proposal aims to shrink the by reversing Trump-era tax cuts for the wealthy, while also lowering costs for middle-class families.
[00:00:34] Critics argue that these reforms fail to effectively address the significant revenue shortfall and overlook necessary structural changes to curb spending. Does President Biden’s budget proposal effectively steer the federal government towards a balanced approach suitable to our current era of peace and prosperity, or does it resemble more of a collection of campaign promises, sidestepping deep-seated structural deficits that are politically inconvenient to tackle in an election year?
[00:01:04] My guest today is Brian Riedel, Senior Fellow at the Manhattan Institute, specializing in budget, tax, and economic policy. With extensive experience as Chief Economist to U. S. Senate Leadership, Staff Director for the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth, and Budget and Policy Advisor for two presidential campaigns, Mr. Riedel brings profound insights into the intricacies of the federal budget process. He will evaluate President Biden’s budgetary approach in comparison to recent administrations and provide his assessment on whether the proposal is likely to fulfill its pledges, as well as offering a well-crafted initial step towards mitigating the growth of national debt.
[00:01:47] When I return, I’ll be joined by Senior Fellow at the Manhattan Institute, Brian Riedel. Okay, we’re back. This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by Manhattan Institute Senior Fellow, Brian Riedel. Welcome back to Hubwonk, Brian. Thank you.
[00:02:03] Brian M. Riedl: Glad to be here. Thanks, Joe.
[00:02:04] Joe Selvaggi: All right. I’m very happy to have you back.
[00:02:06] We’re talking in some, no small part, current events. We’re going to talk about budgets, budgeting, largely based on the fact that, the president last week presented, a budget proposal for the upcoming fiscal year. We’ve heard some of his, remarks in the State of the Union, and we want to get past all the politicking and all the negative partisanship and get to some substance.
[00:02:28] This presidential race is almost six months away. And, so we’d like to cut through the fog and offer our listeners some sort of tangible policy outlines that they can make an informed choice when they go to the ballot in November. So let’s get started. We did see a policy budget proposal, but it was for a year that we’re already in.
[00:02:49] Am I right? Didn’t the fiscal year begin last year sometime, like, in September?
[00:02:53] Brian M. Riedl: We have been operating on a continuing resolution, basically, for discretionary programs now for half of the fiscal year, which is absurd. Basically, we’re just keeping last year’s spending on autopilot for discretionary appropriations.
[00:03:06] The president’s budget that came out is for the year starting on October 1st, 2024, so they have about six months to try to get their act together before the next fiscal year starts. It would be helpful if they’d finish the budget for the last fiscal year first.
[00:03:21] Joe Selvaggi: Yes, indeed, but better late than never. So let’s forget the fact that it’s six months late.
[00:03:26] Let’s talk in broad terms. How big, for our listeners who don’t track this all the time, how big is, how much does the federal government spend in a year?
[00:03:35] Brian M. Riedl: The federal government spends roughly 7 trillion dollars a year, which is an enormous amount of growth. It’s about 23 percent of the economy. It has historically been closer to about 20 percent of the economy since 1960. And it’s bumped up to really about 24 percent of the economy in the last couple of years. 7 trillion is a huge number. It’s more than people can imagine. So one number that I use is that the federal government spends about 50,000 for every household in America.
[00:04:10] You’ll decide for yourself if you’re getting your money’s worth.
[00:04:13] Joe Selvaggi: Okay, fair enough. So we’re going to talk a lot about debt and deficit today, but we understand, that’s what they spend, but they take in a certain amount in revenue. So, to define our terms, we’re going to talk about debt and deficit.
[00:04:24] First, let’s talk about the deficit, which is, these are late terms, is the difference between what they spend and what they take in. What is the amount of the deficit this year? In other words, how much less will they be taking in revenue than they spend?
[00:04:37] Brian M. Riedl: Well, in the fiscal year that ended about six months ago, the government ran about a 2 trillion deficit.
[00:04:44] They reported 1. 7 trillion, but there was basically an accounting glitch of 300 billion that got incorrectly reclassified into the wrong year. The debt rose by 2 trillion last year. The deficit was 2 trillion. We’re on pace to continue it being anywhere between 1. 7 and 2 trillion this year. And then it starts to rise even more over the next couple of years.
[00:05:09] Economists look at the deficit as the percentage of GDP, the percentage of national income. It’s about seven percent of GDP, which is more than double the average of about three percent of GDP. It’s a number economists are really concerned about. They will tell you that seven and a half percent of GDP deficits are unsustainable.
[00:05:30] And it’s also worth noting that the deficit doubled last year. In one year, despite peace and prosperity, which has never really happened before, to run deficits this big in peace and prosperity. So economists are quite alarmed right now. They will tell you that you should not have deficits surging this fast when the economy is growing and we’re not involved in a major war.
[00:05:55] Joe Selvaggi: So, again, to define the terms for our listeners, we borrowed a trillion dollars that we didn’t take in revenue, so that added to an existing, cumulative debt that we’ve amassed to this point. Is that roughly, I think, I want to ask you, I think it’s 34 trillion?
[00:06:10] Brian M. Riedl: Yeah, well, last year we spent 7 trillion and collected 5 trillion, so we had to borrow 2 trillion.
[00:06:18] That 2 trillion that we had to borrow last year to pay the bills, added to the debt, and the debt cumulatively is now about 27. 5 trillion, the debt held by the public. So every deficit every year just adds up to the total debt.
[00:06:36] Joe Selvaggi: Okay, so this is the last year of Biden’s first term. He may get a second, we don’t know, but how does this run rate compare with past presidents?
[00:06:46] Whether we want to talk about how much debt is accumulated in the four or eight years they serve, or if we want to talk about structural deficits, what is the typical, difference between revenue and money spent?
[00:06:57] Brian M. Riedl: Yeah, I think you could, there are different ways to look at it. you could just look at the total deficit and say the deficit has averaged about 3 percent of GDP for the last 60 years.
[00:07:07] President Biden is currently running deficits of 7 percent of GDP even after the pandemic. That’s about twice as big. The other way economists often like to look at it, and the way that I’ve analyzed it, is I measure the cost of legislation under every president because there are a lot of parts of the deficit the president doesn’t have much control over, because a lot of the government is on automatic autopilot.
[00:07:33] It’s really hard for anyone to really control it. It just happens automatically, and the president can’t unilaterally change those parts of the deficit without going through Congress. If you measure the actual legislation signed by the president, Biden has already signed legislation and executive orders adding roughly 5 trillion in 10-year deficits.
[00:08:00] That is significant, to do that in about three years. By contrast, President Trump added about 8 trillion in four years. And all of those numbers dwarf past presidents. President Bush and President Obama were lower than those numbers over the long term.
[00:08:21] Joe Selvaggi: Sure. Okay. So, again, you mentioned, President Trump.
[00:08:24] Again, that’s the Biden’s opponent. you said he spent 8 trillion. That seems like a bigger number than 5 trillion. And so we’re going to say, we don’t play favorites here. We’re an equal opportunity critic. What about though, when we talk about Trump running up those eight trillion? Can we attribute most of that, or some of that, or a good portion of that to the fact that he was presiding over a desperate lockdown and all the stimulus money that was needed to help us get through a pandemic?
[00:08:50] Brian M. Riedl: Some of it, yes. So again, President Trump signed legislation with a net 10-year cost of 7. 8 trillion. Half of that was related to the pandemic, 3. 9 trillion. But you also had 2 trillion in tax cuts, 2 trillion in discretionary hikes, and a few small offsetting differences. So, Even without the pandemic, you had about four trillion dollars over 10 years.
[00:09:16] Now you can still say, well, four trillion, that’s not that bad when you compare to other presidents. But don’t forget other presidents have costs. of emergencies too. President Biden was responding to the pandemic, so his number was up a little bit. President Bush had 9/11 and the Great Recession.
[00:09:35] President Obama had a Great Recession that he was responding to. So it’s not like we can only adjust President Trump’s numbers. The last four presidents have all had deep recessions or wars that drove up part of their costs. That being said, again, President Bush had about 7 trillion over 8 years. Obama had 5 trillion over 8 years.
[00:10:01] Trump had 8 trillion over 4 years. and like I said, President Biden’s a little bit behind Trump’s pace. but he’s about where Trump was at this point when the pandemic made it worse.
[00:10:12] Joe Selvaggi: Well, I’m glad you brought all those other crises up because, as you mentioned, it’s rare that we have a time like we’re in now with no wars, no pandemics, no problems.
[00:10:21] And yet the president now is proposing a budget that seems to continue on pace to a 2 trillion deficit. Yeah. Forward. What does, let’s say, any of the, you’re in, policy world, you’re in wonky land. What do policy advocates, those people who support this kind of approach to the president, what do they say is the excuse, effectively, for spending two trillion dollars that you don’t have?
[00:10:44] Brian M. Riedl: The argument they will give is that it’s too hard to cut the deficit without doing significant damage to priority benefits Or, raising taxes on people they don’t want to raise. So there’s a, the cost of reducing it is too high. There’s also a case, some will say, that deficits don’t matter because Americans haven’t felt the pain yet.
[00:11:08] Interest rates have risen over the past couple of years, but they will argue that interest rates are coming back down. I think these views are strongly misguided, but there’s a certain view that the pain of deficit reduction is too great and we haven’t had a fiscal crisis yet, so what’s the worry?
[00:11:25] Joe Selvaggi: Okay. All right. So we’re going to try to whip up a little bit of worry, at least based on a sober analysis here. I’ve heard again, once this budget came out, I heard some of the president’s spokespeople. I’m thinking of the guy, Jared Bernstein, who I think was a Republican. And, saying, look, we’re actually helping here.
[00:11:47] We’re reducing the deficit but again, I looked at what I could find and I don’t see any reduction in deficit. What are they presenting as deficit reduction and what measures are they using to say, yeah, if you squint just right, this number, this deficit is going down because of this budget?
[00:12:05] What are they basing that on?
[00:12:06] Brian M. Riedl: What they’re saying is that the budget includes 5 trillion in new taxes and 2.5 trillion in new spending over 10 years, and they’re saying, well, look, if we raise taxes by 5 trillion and we raise spending by only 2. 5 trillion, then the net effect is taxing 5 trillion more than spending.
[00:12:29] We will reduce the growth of the deficit. Not the deficit itself, but the growth of the deficit relative to the baseline by two and a half trillion over 10 years. There are a couple of problems with that. The first is, I’ll be blunt, the numbers are fake. The president has endorsed extending the 2017 tax cuts for all families earning under 400, 000, but he leaves out the 2 trillion cost of this policy.
[00:13:01] So there’s a 2 trillion tax cut extension that he doesn’t have. Additionally, he proposes extending the child tax credit to the older 2021 levels permanently, which was back when it was 3,000 or 3,600. He only accounts for the first year’s cost of it. Additionally, he assumes placeholder numbers on discretionary spending, which is the annual appropriations that go through Congress for programs like defense and veterans and education.
[00:13:32] He assumes dramatic cuts deep into the future. He’s all but said are just fake placeholder numbers. If you adjust for these, that’s about six trillion dollars in gimmicks. So the two and a half trillion dollars in deficit reduction is really a deficit increase when you adjust for his own proposals to extend the child credit, extend the 2017 tax cuts for those earning under 400, 000, And keep discretionary spending on its current pace.
[00:14:03] So, really, the deficit would be rising above the baseline, not falling, if the numbers were presented honestly.
[00:14:11] Joe Selvaggi: Again, I want to include, I don’t want this to be a, appear to be a partisan critique. For what we know about Trump, or, let’s say, a future Trump administration, I don’t want to overgeneralize, but my analysis suggests that they would, I don’t want to go too far down this rabbit hole, but in 2025, we have what we call a fiscal cliff where all those tax, breaks expire, nearly all.
[00:14:33] Is it your view that the future Trump administration, Their plan would simply be to allow those to continue indefinitely, right?
[00:14:42] Brian M. Riedl: The position of the GOP is to extend the tax cuts for 100%. The position of the Democrats is to extend them for 98 percent of taxpayers, or whatever the 400,000 cutoff.
[00:14:52] It might be about 96 percent of taxpayers. And then also add additional tax cuts, such as extending the child credit. So both parties probably want to spend about three trillion dollars to extend the tax cuts. My criticism of President Biden is that he didn’t put the cost in his budget.
[00:15:09] That he’s claiming deficit reduction by just leaving out a policy that he and the Republicans both agree on and is going to happen. if you’re going to extend the tax cuts, fine, but put the numbers in your budget.
[00:15:24] Joe Selvaggi: Yeah, indeed. And of course, I was going to talk about compare and contrast, but it seems like almost, ironically, they’re very similar plans.
[00:15:32] Ironically, the Democrats want to cut taxes even more for, let’s say, lower-income people and want to, let’s say, increase taxes on those making more than 400, 000. You and I in an earlier podcast have established that’s a very small number of people, right? that’s, you mentioned one or two percent of people making income in that range, so raising taxes on them is going to be a drop in the bucket.
[00:15:54] Isn’t that fair?
[00:15:55] Brian M. Riedl: Yeah, there’s a certain myth. That’s widespread, unfortunately, that if we just tax the rich more, we can eliminate the budget deficits and even pay for all these new, wonderful benefits. The numbers just don’t work. I think, what President Biden proposes, the 5 trillion in new taxes on the rich over the next 10 years, really pushes the boundaries of what you can actually raise.
[00:16:19] In fact, I would argue that he would actually raise far less than 500 trillion or 5 trillion when you account for the economic losses. broadly speaking, I wrote a report last fall called The Limits of Taxing the Rich that showed that even if you set every tax for corporations and the richest 2 percent at the revenue-maximizing rates, and you got rid of loopholes, and you went after tax evasion, you could probably raise at most 1 2 percent of GDP in new revenues.
[00:16:53] Now, the deficit is 7.5 percent of GDP. And I’m saying, if you just said, we’re gonna set every tax rate to collect the most money, without regard to the economy, without regard to anything else, you could get 1 2 percent of GDP. I’m not saying don’t tax the rich. I think everything has to be on the table.
[00:17:12] Everybody’s going to have to take a cut. But there’s a certain myth out there that as long as you just tax the rich, we can shield every family earning under 400,000. And we also don’t have to cut spending. And it’s just mathematically not true.
[00:17:30] Joe Selvaggi: Yes, I remember reading that paper and say, all the revenue, all the income of those making more than 400,000 a year amounts to 2 trillion a year, which is a tax rate of 100% if you took it all, and that still doesn’t solve anything.
[00:17:42] Brian M. Riedl: Oh, and additionally, we talk so much about billionaires. If you seized every penny from every billionaire in America, and I mean their house, their car, their yacht. Every investment they have, you shuttered every business they have. You took their kids’ toys. You took every penny of net worth from every billionaire in America and sold it to fund the government.
[00:18:08] You could fund the federal government one time for nine months. And then it’s gone. That’s it. So again, the widespread myth that if we just tax billionaires, we can have anything we want. It’s just flat-out false, and if you look at places like Europe, they tax the wealthy at pretty much similar rates as us.
[00:18:28] Their extra revenue comes from taxing the middle class. Indeed, okay.
[00:18:33] Joe Selvaggi: So, I want to circle back to that a little bit later, but I want to, I don’t want to bury the lead here. All of our conversations between Biden and Trump, or budgets and deficits, we’re really talking about what we would, and Discretionary spending. That is every year, there are, I guess 12 appropriations, bills that are approved and, one by one, either, yes or no, a little more, a little less, but this is, these are choices.
[00:18:59] Annually made by the Congress and approved by the President, that address a portion of the budget is a choice, discretionary, so, so the name implies. What percentage of the budget is discretionary, that is, what we’re talking about here? And what is the other thing, the non-discretionary, that we’re not talking about?
[00:19:17] So, let’s take that apart for our listeners.
[00:19:20] Brian M. Riedl: Yeah, the discretionary budget has collapsed. back in the early ’60s, about 70 percent of the budget was the discretionary spending that actually went through the budget every year. now it’s closer to about 25 or 30 percent of the budget is discretionary.
[00:19:36] What that means, it’s not that we’ve necessarily cut discretionary spending to an extreme level, as much as the mandatory spending has crowded it out and the concern that people who focus on deficits have is that the discretionary spending is the only part of the budget that Congress and the President have, can really control easily every year.
[00:20:02] Every year, those 12 appropriation bills have to be drafted and passed or those programs mostly shut down. The rest of the budget, the other two-thirds of the budget, is on autopilot. This is Social Security, Medicare, Medicaid, most anti-poverty programs, and farm subsidies. These programs, Congress just creates a law and says, everyone who’s eligible gets it.
[00:20:31] And it spends what it spends. We’re not, it’s not going to go through the budget every year. We’re just going to put it on autopilot for many years and it costs what it costs. Those are uncontrollable. That means unless Congress comes in and with the president changes the law, they’re on autopilot and that’s the part that’s squeezing out discretionary spending.
[00:20:52] It means that policymakers are losing control of the budget. They’re losing control of spending because more and more of it’s on autopilot.
[00:21:01] Joe Selvaggi: So if I do the math, quickly, you, we’ve got $7 trillion of spending and 70% of it is non-discretionary. So $5 trillion is spent without the intervention of Congress, essentially, as you say, on autopilot. Is this right?
[00:21:15] Brian M. Riedl: Yes. Yeah. Discretionary spending is about $1.8 trillion per year out of the $7 trillion. There’s interest. Interest is usually considered part of the mandatory. Some people list interest as a third category. but yeah, of about 7 trillion, 5. 2 trillion of it is just simply on autopilot.
[00:21:34] Granted, that can be controlled, but the President or Congress can’t unilaterally change it. They can’t block a bill. if the President wants to fix entitlement programs, he can’t, unless Congress agrees to pass a bill. Discretionary spending, the president has more control because that actually has to be signed every year.
[00:21:55] Joe Selvaggi: So these are buckets, you mentioned social security, big one, Medicare, Medicaid, big one and, we can, we’ve talked in the past about the silver tsunami, a lot of people retiring talking about 10,000 people a day going into medicare, social security, these kinds of things, as you say, those are growing, and in a sense, eclipsing these other discretionary, spending items.
[00:22:14] When a president presents a budget, or a presidential opponent presents a budget, So how are you going to reduce the deficit? It seems to me this is like the, 8,000-pound gorilla, or 5 trillion dollar, gorilla, or elephant in the room. How is it that nobody seems to be talking about what really is affecting the budget?
[00:22:31] It’s, I know there’s a boogeyman on either side, right? The boogeyman on the right might be, welfare recipients, and the boogeyman on the left might be, the Department of Defense, or, who knows? what do you think? Why isn’t anyone talking about the nondiscretionary, because you say it’s legislatively mandated, but it could be legislatively fixed, is that right?
[00:22:50] Brian M. Riedl: Yeah, in fact, it needs to be legislatively fixed and pared back, because again, it’s totally on autopilot. Like I said, you could, the not, the discretionary stuff, our programs like Defense, Veterans, Education, Health Research, Highways, that stuff goes through the budget, but the stuff that’s on autopilot is sometimes some of the most controversial programs in the government.
[00:23:13] Social Security, Medicare, Medicaid, much of the safety net. Lawmakers don’t want to reform those because it’s controversial. And so if you talk about social security and Medicare, you’re going to have a voter uprising. In fact, a year ago, if you remember, President Biden and congressional Republicans were tripping over themselves to shout that I would never change Social Security or Medicare.
[00:23:40] Well, the problem is the costs of these programs are rising 7 percent per year. Every year, an automatic autopilot, that’s just not affordable. The economy can’t grow fast enough. Tax revenues can’t grow fast enough to keep up with these programs growing 7 percent per year. just to put a number on it, or, because this is what I do, I’m an economist.
[00:24:04] Social Security and Medicare are not fully funded by payroll taxes and premiums. They’re not enough. So every year, these programs run a shortfall that has to be paid for out of general revenues. Last year, the Treasury had to transfer 500 billion into Social Security and Medicare in order to be able to pay all benefits.
[00:24:26] A decade from now, they’re going to have to transfer more than 2 trillion a year into Social Security and Medicare to pay all benefits. So again, just a decade from now, Social Security and Medicare will be running a 2 trillion annual shortfall on autopilot. That’s why the deficit is rising, that and the interest costs, but it’s too controversial for lawmakers to address.
[00:24:51] Joe Selvaggi: I’m listening to you and I’m imagining a critic saying, the problem is, it’s not that the revenues, the cost is going up. But, we keep talking about tax cuts, that seem to make headlines. We’ve cut taxes so much that we’ve impoverished these very useful, necessary programs. Taking a step back.
[00:25:08] On a historical basis, are Americans paying less in taxes, because that’s really all we hear about is tax cuts, taxes for the rich and all. Are we paying less in taxes? And also, who’s paying our taxes? Which Americans are paying the taxes? Is it a shared burden? What’s going on here?
[00:25:26] Brian M. Riedl: The tax code right now raises about 17.
[00:25:30] 5 percent of GDP in tax revenues. That roughly matches the post-1960 average. total tax revenues are about the same as they’ve always been, even with tax cuts. Because part of the thing is, over time, the tax code has provisions that automatically, and gradually raise taxes. And so the effect of the tax cuts we’ve had in 2001 and 2017 was to basically cancel tax hikes.
[00:25:57] And keep revenues at about 17. 5 percent of GDP. So the tax burden is about normal compared to what it’s always been. The revenue collection is about normal. It’s about 17 percent of GDP. Now, certainly, if we hadn’t cut taxes in 2001 or 2017, revenues would have grown on their own closer to 19 percent of GDP, which would be well above the long-term average of 17.
[00:26:26] So there was a scenario by which we allowed taxes to rise to 19 percent of GDP without the tax cuts. Perhaps that would have been the better policy. Moving forward, however, if we extend the tax cuts, Revenues gradually rise to about 19 percent of GDP over 30 years. If we don’t extend the tax cuts I’m sorry, if we extend the tax cuts, they rise to 18.
[00:26:51] If we don’t extend the tax cuts, they rise to 19. So we’ll be between 18 and 19. The challenge is, spending is going to 30 percent of GDP over 30 years. 30. Whether we have revenues at the normal 17, or where they’re headed towards 18, or if we let the tax cuts expire 19, you can’t keep up with spending going to 30 percent of GDP.
[00:27:17] And so I think there’s always a case for putting taxes on the table because you can’t get there on spending cuts alone. But the idea that we could have any sort of tax code that could collect anywhere close to 25 or 30 percent of GDP, I don’t think Americans would like what that tax code looks like.
[00:27:37] So really, it’s ultimately a spending-driven problem. Spending is the moving variable that’s driving deficits, but that doesn’t mean you can’t have taxes be part of the solution, without necessarily doing anything that would really scare Americans.
[00:27:54] Joe Selvaggi: So there are two ways we could go with this. We could talk about how do we curb, the spending growth, but I do want to, I’m sure there’s some listeners out there saying, oh, well, so what?
[00:28:00] Our average has been 18, 17, 18 percent, revenue. Why can’t, we want more government services? Why shouldn’t we as Americans all pay a little bit more? I recently read a piece, of course, it may have been something you wrote, that at the current moment, the top 10 percent of earners, or the top 50 percent pay all, government services.
[00:28:18] Federal, income tax, meaning the bottom 50%, Army, Navy, Air Force, Marine, essentially the average American, pays effectively, zero to the federal government, given that whatever they pay and they get out, at least as much. and yet, everybody thinks, someone else is getting away with murder, despite the fact they’re getting a lot for nothing.
[00:28:34] Who would be paying the additional tax if we go from 18, 19, 25, 28, if our tax caught up with our spending, who’s going to bear that burden?
[00:28:43] Brian M. Riedl: Well again, the deficit over 30 years is going to be about, 10 to 14 percent of GDP, depending on what assumptions you make. You can raise taxes on the rich by 1 or 2 percent of GDP before they basically max out.
[00:29:00] You hit the revenue-maximizing wall. And when people may have trouble believing that, let me reiterate, we already tax the rich at about the same levels as Europe. In fact, our highest-income corporate capital gains and estate taxes are actually slightly higher than the European average. Which means you can’t go that much higher on taxing the rich.
[00:29:22] You can get about 1 or 2 percent. The rest is gonna have to come from the middle class. And the reason that the United States has the most progressive tax code in the OECD is because we tax the rich at similar rates. But as you mentioned, We don’t tax the middle class or poor much at all. The median-earning family in America pays an effective income tax rate of about two percent and now their payroll taxes contribute more, but for the rest of the government, outside of where your payroll taxes are going, Social Security and Medicare, they’re paying a two percent income tax. Ultimately, the bulk of the revenues are going to have to come from the middle class. They’re going to, we’re basically going to have to do it the way Europe does it.
[00:30:06] This is big payroll tax hikes and a VAT. A value-added tax is like a national sales tax that every country in the OECD has, except for us. This gets in the way of the politics, though, because both Trump and Biden are adamant that no one under 400, 000 should see a penny in new taxes. But you can’t get there on just taxing the rich, because the rich already pay the overwhelming majority of the taxes, and there’s only so much higher you can go.
[00:30:39] Joe Selvaggi: Well, again, I’m listening to the inner voice in my head saying someone on the, let’s say more, left of center might say, well, you’ve forgotten one great source of revenue, which is raising corporate taxes. Now, I’ll editorialize and say corporate tax is essentially a myth in that. When you tax a corporation, there’s no guy named corporation.
[00:30:57] All those taxes get passed on to, of course, to shareholders, of course, which are your 401k, right? To employees, there’s less money to give them, and the consumers, the prices go up. I say, if you can’t imagine how it works at IBM, imagine if you tax a cab company and said, okay, you should pay your fair share cab company owner.
[00:31:14] The cab driver is not going to work for last. He, he’s going to struggle. Your fare is going to go up, or the cap company just closed down because they can’t make a profit. So, there is no corporate tax that could just magically come to the rescue.
[00:31:25] Brian M. Riedl: What would you say to that? Yeah, and in fact, the 1 2 percent from the rich I mentioned, includes corporate taxes.
[00:31:32] That is both, that is individual, and capital gains, and corporate, and estate taxes. And the numbers just aren’t that big. even if we restored the 35 percent corporate tax rate that we had up to 2017, which, if you count state taxes would be about a 40 percent corporate tax rate. This would, first off, not only be the highest corporate tax rate in the world, it would be nearly double the average of our trading partners in Europe.
[00:32:04] Double. We would have double the corporate tax rate. But even then, you would raise about 0. 4 percent of GDP. from having corporate tax rates practically double our trading partners. And there’s a reason they cut the corporate tax rate. There’s a reason even Democrats cut the corporate tax rate, which is the same reason Europe has cut its corporate tax rates.
[00:32:27] It’s not because Germany and France love big business. It’s because when the corporate tax rate becomes a global outlier, businesses leave. Money leaves, and companies move abroad. You can’t force the companies to stay in America and the American multinational companies who are competing against all these countries can’t do so.
[00:32:52] If the American company is paying a 40 percent rate and we’re competing against a British company paying a 22 percent rate, we’re going to lose and we’re going to lose jobs and we’re going to lose competitiveness. Furthermore, as you mentioned. The corporate tax rate gets dumped on lower wages, higher prices, and lower stock values in 401ks.
[00:33:16] So, it’s okay to put corporate taxes on the table. In fact, in my budget, I have proposed some changes to corporate tax policy. But you’re not going to close a massive deficit just on corporate taxes. The math doesn’t work, and the economics get ugly.
[00:33:33] Joe Selvaggi: Yeah, well, okay, so we’ve, I think we’ve put to rest all the wild theories of how we’re going to fix this, and when we talk about these growing programs, let’s say Medicare or, Social Security, folks I think in their mind imagine this is all money that they’ve paid out through their lives, and they’re just getting back their money, and that any talk of taking any or reducing any benefit is essentially breaking a promise.
[00:33:59] Share with our listeners, is that, is there any validity to that claim, and what would you do in a sense to tweak or modify such that these programs are not gotten rid of, but perhaps made to grow more slowly or not at all?
[00:34:15] Brian M. Riedl: Yeah, the two of the big myths about Social Security and Medicare are first, that seniors are very poor.
[00:34:21] Of course there’s senior poverty, but on average, seniors are the highest earning, wealthiest group in America. Since 1980, senior income has grown four times as fast as worker income. So seniors on average are doing pretty well, which is why it’s even more frustrating that when you get to the second myth, seniors are not on average just getting back what they paid in.
[00:34:48] and social, and in social security, they get about 15 to 20 percent more than they pay in. Even when you adjust for present value, so when you say, well, what about inflation? What about interest rates? Even when you fully adjust in the present value, dollars are coming out about 15 or 20 percent ahead.
[00:35:06] On Medicare, it’s even more drastic. The typical senior in Medicare will get back triple what they pay into the system, even adjusted for present value. So if you put those together, the typical senior couple retiring today. Middle-earning, senior couple, retiring today, will have paid 1 million into Social Security and Medicare over their lifetime, in net present value, and will get about 1.
[00:35:37] 4 trillion in benefits. All are adjusted into net present value. You said trillion. I’m sorry, Bill. I’m used to trillions. Not millions. They will pay one million in, and they’ll get 1. 4 million back in benefits. And I’m so used to trillions as a budget geek. But still, they’re getting 400, 000 more back than they paid in.
[00:35:59] Lower income and single earners. Get an even higher return. And the problem is you multiply that by 74 million boomers and you see why these programs are going to run 128 trillion shortfall over the next three decades. So,
[00:36:17] Joe Selvaggi: we’re getting close to the end of our time together. I do appreciate your time.
[00:36:21] So, my, my head is spinning with these numbers. As you say, Like it or not, the average family is getting more from the government than they put in, I guess that’s good news for them. And you can see why they would not be eager to see any changes to this, I dare say, a sweet deal.
[00:36:36] So, you don’t see the political will, things aren’t bad enough yet to do anything about it, hence we see a president with A budget proposal that is, really fantasy, it’s either number made up or not addressing the crux of the core of the problem. When will we start to realize that the end is near?
[00:36:54] Which is to say, when will this massive yawning debt start to impose itself on the average man on the street? Will he suddenly wake up and say, 30 trillion was fine, but 40 trillion is not, no good. Or will things like, I’m thinking of course, all this money being spent.
[00:37:09] It has the effect of inflation, of course. The more money you pump in, it’s like steroids or something. we’re all running around after the same goods, with more money. That’s inflation. But also interest rates. I think, they’re borrowing, we’re borrowing, everybody’s borrowing. And the cost of borrowing and other people’s willingness to lend, they’re gonna have to command higher and higher rates.
[00:37:27] This inflation that we see is going to be persistent and interest rates, I think, are bound to be high. Would you agree with that as being the first wave of, the influence of these large deficits?
[00:37:38] Brian M. Riedl: Right. I generally agree with that. I think I would love for us to reform Social Security and Medicare before we have to.
[00:37:45] The problem is, once you feel the pain, it’s too late to do the relatively pain-free reforms. The danger is, right now, we’re at 100 percent of GDP in debt. It’s, we’ve only had, the debt has only been 100 percent of GDP before, during the peak of World War II. It’s well above Europe. And it’s projected to rise anywhere from 170 to 340 percent of GDP over the next 30 years, depending on whether we extend the tax cuts, whether we extend expiring spending programs, and whether interest rates rise.
[00:38:19] Most economists agree that at those points, the financial markets simply can’t lend us enough money. To run deficits that big, again, Social Security and Medicare are going to borrow 128 trillion over 30 years. The question is, can the financial markets even lend us that much money without at least pushing up interest rates?
[00:38:43] And at some point, the financial markets are going to cry uncle and say, we don’t have the resources to lend that much money at low-interest rates. So when interest rates rise, that just makes the debt more expensive because now we’re paying higher interest on our bonds, then you have to borrow more and you get this what’s called a debt cycle.
[00:39:03] When something like that happens is tough to predict. the economists at the University of Pennsylvania at the Wharton School believe 20 years before there is a substantial financial Panic. It could be five years, it could be 20 years, it could be 30 years. It’s really hard to predict because it’s as much a question of market psychology as it is of economic fundamentals.
[00:39:31] At what point do the markets panic that we can’t handle this much debt? But what I can say, without predicting when it’s going to happen, is it has to happen at some point because If the debt goes to two to three hundred percent of GDP, something has to give. The financial markets can’t handle that. So I think what we’re looking at is the financial markets panicking, essentially no longer offering affordable lending to the federal government.
[00:40:02] And that forcing the federal government to close its deficits very quickly by either dramatically raising taxes and or dramatically cutting spending. That’s what I’m trying to avoid having to do that in a panic. A few years down the road. And even, again, I’m listening
[00:40:19] Joe Selvaggi: to what you’re saying, but even now, I was reading that the, the service of the debt that we have now, that 34 trillion, in relatively low, interest rates, the government enjoys, relatively low-interest rates, is now north of 700 billion, which is larger than what we spend on defense.
[00:40:35] So, it’s crowding out all the other services. if our listeners from the left of center think the government is a wonderful thing and ought to be spending more, all those good things and programs it wants to spend on can’t be, grown if this debt is this sort of the, eventually going to occupy half of our, our expenses.
[00:40:56] So, so, if, even if you believe in all the good things government can do, debt is a weight around your neck, while you’re trying to swim. Is that fair?
[00:41:04] Brian M. Riedl: Exactly. The interest on the debt has gone from 350 billion to 663 billion in two years. Over the next decade, interest is going to rise to nearly 2 trillion.
[00:41:18] What that means is a decade from now, under a current policy baseline, where we keep current policies, a quarter of your federal taxes will just go to paying interest on the debt. That means all the federal taxes you pay until April 1st will just pay interest on the debt. it grows even further. Over 30 years, interest on the debt is projected to grow to between half and three-quarters of your federal taxes.
[00:41:46] That’s federal taxes you’re paying that’s not going to fund a social security benefit, a veteran’s benefit, build a highway, feed a poor person. You’re going to have half or two-thirds of your taxes just paying interest. You mentioned interest in passing defense this year. It’s going to pass Medicare next year.
[00:42:05] By next year, interest is going to be the second biggest item in the budget. And by 2042, it passes social security to become the single biggest item in the federal budget. What a waste of our tax dollars. Yeah.
[00:42:20] Joe Selvaggi: Yeah. And for, again, I’m thinking about action items and how to tie this whole conversation up with the flow.
[00:42:24] I don’t know what our listeners will take away. I, we’re certainly not piling on Biden or Trump. They’re both, they both seem to be, equally delusional. if our listeners are looking for some action item, is it a party they should follow? Is it a, or are we looking for leaders and representatives who can speak truth to us and say, okay, look, it’s hard to hear, but when I go to Washington, I’m going to at least do my part to address these larger issues and hopefully make your future, your children’s future, grandchildren’s future, a little safer because I’m addressing what really matters?
[00:42:59] Is that fair? It’s not a party issue. It’s more like, let’s find some, fiscally responsible people to go to Washington. Is that fair?
[00:43:06] Brian M. Riedl: Absolutely. I think if you’re looking for a fiscally responsible party, you’re going to be looking for a long time. both parties have been extraordinarily fiscally irresponsible.
[00:43:15] And the reality of it is, the three main levers to fix the deficit, you’re going to have to fix social security, fix Medicare, and address middle-class taxes. Everything else people talk about can be a part of the solution, but it’s not going to get you close. And what I mean is taxing the rich, cutting defense, cutting foreign aid, defunding Ukraine, immigration, reform.
[00:43:42] Those are all fine to put on the table. They’re not going to get you anywhere close. The three main levers are social security, medicare, and middle-class taxes, and you can decide individually how much of each lever you want to pull. But when you’re looking for that, you’re looking for truth-tellers in Washington who will admit that, and the problem right now is both parties have said No social security reform, no medicare reform, no middle-class taxes.
[00:44:10] So what you need to do is look for truth-tellers in Washington who will at least be honest and say, Look, everything’s going to have to be on the table, including that. We’re not going to get there by taxing the rich or defunding Ukraine by itself. If you can find lawmakers who can do that, those are the ones you want to champion.
[00:44:29] But you also have to remember, Any solution is going to have to be bipartisan. This stuff is too toxic and too controversial for one party to do by itself in a partisan bill. So, if you’re just hoping to get one party to understand the issue, that’s not enough. You really need to get both sides to get this so that they can hold hands together on a grand deal with everything on the table where everybody takes a hit.
[00:44:57] Joe Selvaggi: Yeah, hold hands and jump, right? that’s right. So I think we’ve run out of time. I wish we had a more positive note to end on. I think our listeners are maybe pretty discouraged. They want maybe a simple solution, something they could put on a bumper sticker. We didn’t offer one today, but at least I think they’re a little more informed about the scale and the scope of the problem.
[00:45:17] So thank you very much for your insight today, Brian. It’s really been a useful resource for our listeners.
[00:45:22] Brian M. Riedl: Thanks so much, Joe. It’s been fun.
[00:45:26] Joe Selvaggi: This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute. It would be easier for you and better for us if you subscribe to Hubwonk on your iTunes Podcatcher.
[00:45:37] It would make it easier for others to find Hubwonk if you offered a 5-star rating or a favorable review. We’re always grateful if you share Hubwonk with friends. If you have ideas,comments or suggestions for me about future episode topics, please You’re welcome to email me at hubwonk@pioneerinstitute.org. Please join me next week for a new episode of Hubwonk.
Joe Selvaggi talks with Manhattan Institute Senior Fellow Brian Riedl about how the contours of President Biden’s recently released budget proposal reveal a persistent, bipartisan reluctance to address profound structural deficits.
Guest:
Brian Riedl is a senior fellow at the Manhattan Institute with a background in budget, tax, and economic policy. He has significant experience in government roles, including serving as chief economist to Senator Rob Portman and as a director of budget and spending policy for political campaigns. Riedl’s work at the Heritage Foundation contributed to efforts to control federal spending. He is a widely published author and media commentator. Riedl holds a bachelor’s degree in economics and political science from the University of Wisconsin and a master’s degree in public affairs from Princeton University.
As Pioneer Institute observes Sunshine Week , March 10-16, it is worth remembering the uncommon courage it took for our founders to so publicly and transparently declare their political beliefs and loyalties at a time when Great Britain ruled the waves and the American Colonies. The Founders were indeed risking it all — fortune, honor, and indeed their very lives — to establish a system of self-governance that serves as a beacon of hope to the world.
Unfortunately, our early twenty-first-century America — and Massachusetts — is marked by only partial sunshine. Politicians long entrenched in the halls of power would much prefer to eclipse the public’s right to information.
Massachusetts deserves better. Only by fully honoring the letter and spirit of the laws can we truly claim that moral high ground to which our brave forefathers first lay claim. We call upon the independent-minded people of Massachusetts to join with us in a bipartisan push for greater government transparency.
The Massachusetts Legislature should be subject to an audit by the State Auditor
As has been the practice for decades, the state legislature bypasses the State Auditor and hires its own firm to perform a review of its books and records. That means the public has limited insight into legislative operations because the audit report itself can be shielded from the public records law, from which the legislature has exempted itself. Pioneer supports State Auditor Diana DiZoglio’s effort to audit the legislature.
Eliminate the governor’s office executive order privilege
Since the Massachusetts Supreme Judicial Court’s 1997 ruling in Lambert v. Executive Director of the Judicial Nominating Council, state officers in Massachusetts have fulfilled public records requests “at their discretion,” reinforcing what is — for the average citizen — one of the nation’s least transparent and most onerous systems for obtaining public records. Unfortunately, Gov. Maura Healey has retreated from vows made early in her administration to be more transparent. Pioneer once again calls upon the governor to live up to her promises and forgo her office’s executive order privilege. There is no better time than Sunshine Week to do exactly that.
The Massachusetts State Legislature must be subject to the state’s public records and open meeting laws
The Massachusetts Legislature continues to exempt itself from the definition of “public body” as it pertains to transparency laws. Pioneer believes that the legislature’s exemptions from public records and open meeting laws violate the state Constitution. Article V of our state’s Declaration of Rights requires that the branches of government “at all times” be accountable to the people. Restricting the public’s access to legislative meetings and records fundamentally undermines that basic right.
Lawmakers should make access to Statements of Financial Interests anonymous, easier, and available online
Among the 49 states that require Statements of Financial Interests (SFI’s), Massachusetts ranks last in making such information available to the public. SFIs are critical for boosting public confidence that legislators and policymakers are acting in the public interest rather than their own. Massachusetts requires that those seeking access to SFIs provide a photo ID and it reports their identity to the official whose SFI is being requested. Such practices amount to intimidation, serving only to keep financial information hidden from public view. It’s up to the legislature to change the laws on SFI’s.
Labor Force: Pioneer released LaborAnalytics, a web tool that tracks workforce and unemployment trends in Massachusetts and the nation. With $2.5 billion in available funding in Massachusetts, this tool is a must for policy makers.
340B Program Transparency: Pioneer Life Sciences Initiative (PSLI), led by Dr. Bill Smith has focused attention on abuse in the federal 340B contract pharmacy program. Pioneer has created a website to keep the public informed and quantify the volume and geographic distribution of contract pharmacies for each 340B-eligible entity throughout the U.S.
Hospital Pricing: Pioneer’s Barbara Anthony and Gauri Binoy created a transparency website, the Massachusetts Hospital Relative Price Tracker, that highlights disparities in relative commercial prices among hospitals, with some major institutions charging 25 to 100 percent higher prices compared to the average of all hospitals, despite efforts to control healthcare cost growth in the state.
U.S. Supreme Court Justice Louis Brandeis was the first to popularize the phrase that states “are the laboratories of democracy.” Though each state has its own priorities, as expressed through their legislatures, they all share certain overarching goals:
States that excel in meeting these overarching goals attract and retain residents and investments. They are the foundation for social cohesion and participation in the economy, politics, and a rich cultural life. We are creating one website that will provide transparency on how states are competing in these core service areas. Our audience? Policymakers, the media, advocates and activists, interested citizens, you.
Access our MassWatch transparency tools for a wealth of cutting-edge data organized to enhance understanding of our state economy. And for a link to a wealth of state data resources you can use to learn more about the business of state government, check out our page linking to some of the most useful parts of the mass.gov website.
“She’s a good girl. She helps me a lot. She has big, big dreams. I don’t have the money, but she has big dreams. I hope she’s going to get everything, but she works so hard. She works so hard in school.”
“Our family is needing to make some really big sacrifices because we believe this is important, and so, we’re basically going to do whatever it takes… Sometimes we look at each other and go ‘I don’t know if I can do it again another month…’”
“A lot of the families have to sacrifice and work multiple jobs… And just scraping together enough money to just make tuition, just the basics.”
“It is discriminatory, that parents who want to choose an alternative to public school for their children, would not in any way receive any compensation for that, whether it be tax credit, whether it be a voucher…”
In the 1840s, nativist movement leaders formed official political parties and local chapters of the national Native American Party (later the American Party), although they continued to be commonly known as the Know-Nothing Party. Politicians sought to insert provisions into state constitutions against Catholics who refused to renounce the pope. The Know-Nothing movement brought bigotry and hatred to a new level of violence and organization.
The party’s legacy endured in the post-Civil War era, with laws and constitutional amendments it supported, still today severely limiting parents’ educational choices. A federal constitutional amendment was proposed by Speaker of the House James Blaine prohibiting money raised by taxation in any State to be under the control of any religious sect; nor shall any money so raised or lands so devoted be divided between religious sects or denominations. These were then named the Blaine Amendments of 1875.
in recent decades, often in response to challenges to school choice programs, the U.S. Supreme Court has demonstrated great interest in examining the issues of educational alternatives and attempts limit parental options. Massachusetts plays a key role in this debate. The Bay State was a key center of the Know-Nothing movement and has the oldest version of Anti-Aid Amendments in the nation, as well as a second such amendment approved in 1917. Two-fifths of Massachusetts residents are Catholic, and its Catholic schools outperform the state’s public schools, which are the best in the nation.
This week on The Learning Curve, University of Arkansas Prof. Albert Cheng and guest co-host Alisha Searcy interview Tufts University Prof. Elizabeth Setren. Prof. Setren discusses her recent study of METCO, a pioneering voluntary school desegregation program under which Massachusetts students in Boston and Springfield are bused to surrounding suburban districts. She discusses METCO’s history, the academic performance of students in the program, enrollment challenges, long-term benefits, and disparities among students. She urges policymakers to make evidence-based policy decisions and calls for further research to enhance the program’s effectiveness.
Stories of the Week: Albert analyzed an article from Your Tango about a former principal’s declaration of how schools need to focus more on academics and less on behavioral issues; Alisha discussed an article from the Hechinger Report on federally-funded education innovation.
Guest:
Dr. Elizabeth Setren is the Gunnar Myrdal Assistant Professor of Economics at Tufts University. Before joining Tufts, she completed a post-doctoral fellowship at the National Bureau of Economic Research. Her research in the economics of education includes studying the academic impact of Boston’s charter schools, while her most recent work focused on the long-term effects of Massachusetts’ voluntary integration METCO program. Prof. Setren’s research has been covered by the New York Times, Wall Street Journal, Boston Globe, Boston Herald, The 74, NPR, and other national news outlets. Setren earned a B.A. in mathematics and economics with highest departmental honors, summa cum laude from Brandeis University, and received her Ph.D. in economics from MIT.
Tweet of the Week:
https://x.com/MargueriteRoza/status/1768414072507084890?s=20
Click here to read a transcript
Biden’s Budget Breakdown: Pragmatic Progress or Political Posturing
[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Last week, President Biden unveiled a budget plan totaling nearly 7 trillion in spending, with 5 trillion in estimated tax revenue, thus projecting a 2 trillion deficit. In response to concerns about escalating federal debt, the president’s representatives have reassured the public that the proposal aims to shrink the by reversing Trump-era tax cuts for the wealthy, while also lowering costs for middle-class families.
[00:00:34] Critics argue that these reforms fail to effectively address the significant revenue shortfall and overlook necessary structural changes to curb spending. Does President Biden’s budget proposal effectively steer the federal government towards a balanced approach suitable to our current era of peace and prosperity, or does it resemble more of a collection of campaign promises, sidestepping deep-seated structural deficits that are politically inconvenient to tackle in an election year?
[00:01:04] My guest today is Brian Riedel, Senior Fellow at the Manhattan Institute, specializing in budget, tax, and economic policy. With extensive experience as Chief Economist to U. S. Senate Leadership, Staff Director for the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth, and Budget and Policy Advisor for two presidential campaigns, Mr. Riedel brings profound insights into the intricacies of the federal budget process. He will evaluate President Biden’s budgetary approach in comparison to recent administrations and provide his assessment on whether the proposal is likely to fulfill its pledges, as well as offering a well-crafted initial step towards mitigating the growth of national debt.
[00:01:47] When I return, I’ll be joined by Senior Fellow at the Manhattan Institute, Brian Riedel. Okay, we’re back. This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by Manhattan Institute Senior Fellow, Brian Riedel. Welcome back to Hubwonk, Brian. Thank you.
[00:02:03] Brian M. Riedl: Glad to be here. Thanks, Joe.
[00:02:04] Joe Selvaggi: All right. I’m very happy to have you back.
[00:02:06] We’re talking in some, no small part, current events. We’re going to talk about budgets, budgeting, largely based on the fact that, the president last week presented, a budget proposal for the upcoming fiscal year. We’ve heard some of his, remarks in the State of the Union, and we want to get past all the politicking and all the negative partisanship and get to some substance.
[00:02:28] This presidential race is almost six months away. And, so we’d like to cut through the fog and offer our listeners some sort of tangible policy outlines that they can make an informed choice when they go to the ballot in November. So let’s get started. We did see a policy budget proposal, but it was for a year that we’re already in.
[00:02:49] Am I right? Didn’t the fiscal year begin last year sometime, like, in September?
[00:02:53] Brian M. Riedl: We have been operating on a continuing resolution, basically, for discretionary programs now for half of the fiscal year, which is absurd. Basically, we’re just keeping last year’s spending on autopilot for discretionary appropriations.
[00:03:06] The president’s budget that came out is for the year starting on October 1st, 2024, so they have about six months to try to get their act together before the next fiscal year starts. It would be helpful if they’d finish the budget for the last fiscal year first.
[00:03:21] Joe Selvaggi: Yes, indeed, but better late than never. So let’s forget the fact that it’s six months late.
[00:03:26] Let’s talk in broad terms. How big, for our listeners who don’t track this all the time, how big is, how much does the federal government spend in a year?
[00:03:35] Brian M. Riedl: The federal government spends roughly 7 trillion dollars a year, which is an enormous amount of growth. It’s about 23 percent of the economy. It has historically been closer to about 20 percent of the economy since 1960. And it’s bumped up to really about 24 percent of the economy in the last couple of years. 7 trillion is a huge number. It’s more than people can imagine. So one number that I use is that the federal government spends about 50,000 for every household in America.
[00:04:10] You’ll decide for yourself if you’re getting your money’s worth.
[00:04:13] Joe Selvaggi: Okay, fair enough. So we’re going to talk a lot about debt and deficit today, but we understand, that’s what they spend, but they take in a certain amount in revenue. So, to define our terms, we’re going to talk about debt and deficit.
[00:04:24] First, let’s talk about the deficit, which is, these are late terms, is the difference between what they spend and what they take in. What is the amount of the deficit this year? In other words, how much less will they be taking in revenue than they spend?
[00:04:37] Brian M. Riedl: Well, in the fiscal year that ended about six months ago, the government ran about a 2 trillion deficit.
[00:04:44] They reported 1. 7 trillion, but there was basically an accounting glitch of 300 billion that got incorrectly reclassified into the wrong year. The debt rose by 2 trillion last year. The deficit was 2 trillion. We’re on pace to continue it being anywhere between 1. 7 and 2 trillion this year. And then it starts to rise even more over the next couple of years.
[00:05:09] Economists look at the deficit as the percentage of GDP, the percentage of national income. It’s about seven percent of GDP, which is more than double the average of about three percent of GDP. It’s a number economists are really concerned about. They will tell you that seven and a half percent of GDP deficits are unsustainable.
[00:05:30] And it’s also worth noting that the deficit doubled last year. In one year, despite peace and prosperity, which has never really happened before, to run deficits this big in peace and prosperity. So economists are quite alarmed right now. They will tell you that you should not have deficits surging this fast when the economy is growing and we’re not involved in a major war.
[00:05:55] Joe Selvaggi: So, again, to define the terms for our listeners, we borrowed a trillion dollars that we didn’t take in revenue, so that added to an existing, cumulative debt that we’ve amassed to this point. Is that roughly, I think, I want to ask you, I think it’s 34 trillion?
[00:06:10] Brian M. Riedl: Yeah, well, last year we spent 7 trillion and collected 5 trillion, so we had to borrow 2 trillion.
[00:06:18] That 2 trillion that we had to borrow last year to pay the bills, added to the debt, and the debt cumulatively is now about 27. 5 trillion, the debt held by the public. So every deficit every year just adds up to the total debt.
[00:06:36] Joe Selvaggi: Okay, so this is the last year of Biden’s first term. He may get a second, we don’t know, but how does this run rate compare with past presidents?
[00:06:46] Whether we want to talk about how much debt is accumulated in the four or eight years they serve, or if we want to talk about structural deficits, what is the typical, difference between revenue and money spent?
[00:06:57] Brian M. Riedl: Yeah, I think you could, there are different ways to look at it. you could just look at the total deficit and say the deficit has averaged about 3 percent of GDP for the last 60 years.
[00:07:07] President Biden is currently running deficits of 7 percent of GDP even after the pandemic. That’s about twice as big. The other way economists often like to look at it, and the way that I’ve analyzed it, is I measure the cost of legislation under every president because there are a lot of parts of the deficit the president doesn’t have much control over, because a lot of the government is on automatic autopilot.
[00:07:33] It’s really hard for anyone to really control it. It just happens automatically, and the president can’t unilaterally change those parts of the deficit without going through Congress. If you measure the actual legislation signed by the president, Biden has already signed legislation and executive orders adding roughly 5 trillion in 10-year deficits.
[00:08:00] That is significant, to do that in about three years. By contrast, President Trump added about 8 trillion in four years. And all of those numbers dwarf past presidents. President Bush and President Obama were lower than those numbers over the long term.
[00:08:21] Joe Selvaggi: Sure. Okay. So, again, you mentioned, President Trump.
[00:08:24] Again, that’s the Biden’s opponent. you said he spent 8 trillion. That seems like a bigger number than 5 trillion. And so we’re going to say, we don’t play favorites here. We’re an equal opportunity critic. What about though, when we talk about Trump running up those eight trillion? Can we attribute most of that, or some of that, or a good portion of that to the fact that he was presiding over a desperate lockdown and all the stimulus money that was needed to help us get through a pandemic?
[00:08:50] Brian M. Riedl: Some of it, yes. So again, President Trump signed legislation with a net 10-year cost of 7. 8 trillion. Half of that was related to the pandemic, 3. 9 trillion. But you also had 2 trillion in tax cuts, 2 trillion in discretionary hikes, and a few small offsetting differences. So, Even without the pandemic, you had about four trillion dollars over 10 years.
[00:09:16] Now you can still say, well, four trillion, that’s not that bad when you compare to other presidents. But don’t forget other presidents have costs. of emergencies too. President Biden was responding to the pandemic, so his number was up a little bit. President Bush had 9/11 and the Great Recession.
[00:09:35] President Obama had a Great Recession that he was responding to. So it’s not like we can only adjust President Trump’s numbers. The last four presidents have all had deep recessions or wars that drove up part of their costs. That being said, again, President Bush had about 7 trillion over 8 years. Obama had 5 trillion over 8 years.
[00:10:01] Trump had 8 trillion over 4 years. and like I said, President Biden’s a little bit behind Trump’s pace. but he’s about where Trump was at this point when the pandemic made it worse.
[00:10:12] Joe Selvaggi: Well, I’m glad you brought all those other crises up because, as you mentioned, it’s rare that we have a time like we’re in now with no wars, no pandemics, no problems.
[00:10:21] And yet the president now is proposing a budget that seems to continue on pace to a 2 trillion deficit. Yeah. Forward. What does, let’s say, any of the, you’re in, policy world, you’re in wonky land. What do policy advocates, those people who support this kind of approach to the president, what do they say is the excuse, effectively, for spending two trillion dollars that you don’t have?
[00:10:44] Brian M. Riedl: The argument they will give is that it’s too hard to cut the deficit without doing significant damage to priority benefits Or, raising taxes on people they don’t want to raise. So there’s a, the cost of reducing it is too high. There’s also a case, some will say, that deficits don’t matter because Americans haven’t felt the pain yet.
[00:11:08] Interest rates have risen over the past couple of years, but they will argue that interest rates are coming back down. I think these views are strongly misguided, but there’s a certain view that the pain of deficit reduction is too great and we haven’t had a fiscal crisis yet, so what’s the worry?
[00:11:25] Joe Selvaggi: Okay. All right. So we’re going to try to whip up a little bit of worry, at least based on a sober analysis here. I’ve heard again, once this budget came out, I heard some of the president’s spokespeople. I’m thinking of the guy, Jared Bernstein, who I think was a Republican. And, saying, look, we’re actually helping here.
[00:11:47] We’re reducing the deficit but again, I looked at what I could find and I don’t see any reduction in deficit. What are they presenting as deficit reduction and what measures are they using to say, yeah, if you squint just right, this number, this deficit is going down because of this budget?
[00:12:05] What are they basing that on?
[00:12:06] Brian M. Riedl: What they’re saying is that the budget includes 5 trillion in new taxes and 2.5 trillion in new spending over 10 years, and they’re saying, well, look, if we raise taxes by 5 trillion and we raise spending by only 2. 5 trillion, then the net effect is taxing 5 trillion more than spending.
[00:12:29] We will reduce the growth of the deficit. Not the deficit itself, but the growth of the deficit relative to the baseline by two and a half trillion over 10 years. There are a couple of problems with that. The first is, I’ll be blunt, the numbers are fake. The president has endorsed extending the 2017 tax cuts for all families earning under 400, 000, but he leaves out the 2 trillion cost of this policy.
[00:13:01] So there’s a 2 trillion tax cut extension that he doesn’t have. Additionally, he proposes extending the child tax credit to the older 2021 levels permanently, which was back when it was 3,000 or 3,600. He only accounts for the first year’s cost of it. Additionally, he assumes placeholder numbers on discretionary spending, which is the annual appropriations that go through Congress for programs like defense and veterans and education.
[00:13:32] He assumes dramatic cuts deep into the future. He’s all but said are just fake placeholder numbers. If you adjust for these, that’s about six trillion dollars in gimmicks. So the two and a half trillion dollars in deficit reduction is really a deficit increase when you adjust for his own proposals to extend the child credit, extend the 2017 tax cuts for those earning under 400, 000, And keep discretionary spending on its current pace.
[00:14:03] So, really, the deficit would be rising above the baseline, not falling, if the numbers were presented honestly.
[00:14:11] Joe Selvaggi: Again, I want to include, I don’t want this to be a, appear to be a partisan critique. For what we know about Trump, or, let’s say, a future Trump administration, I don’t want to overgeneralize, but my analysis suggests that they would, I don’t want to go too far down this rabbit hole, but in 2025, we have what we call a fiscal cliff where all those tax, breaks expire, nearly all.
[00:14:33] Is it your view that the future Trump administration, Their plan would simply be to allow those to continue indefinitely, right?
[00:14:42] Brian M. Riedl: The position of the GOP is to extend the tax cuts for 100%. The position of the Democrats is to extend them for 98 percent of taxpayers, or whatever the 400,000 cutoff.
[00:14:52] It might be about 96 percent of taxpayers. And then also add additional tax cuts, such as extending the child credit. So both parties probably want to spend about three trillion dollars to extend the tax cuts. My criticism of President Biden is that he didn’t put the cost in his budget.
[00:15:09] That he’s claiming deficit reduction by just leaving out a policy that he and the Republicans both agree on and is going to happen. if you’re going to extend the tax cuts, fine, but put the numbers in your budget.
[00:15:24] Joe Selvaggi: Yeah, indeed. And of course, I was going to talk about compare and contrast, but it seems like almost, ironically, they’re very similar plans.
[00:15:32] Ironically, the Democrats want to cut taxes even more for, let’s say, lower-income people and want to, let’s say, increase taxes on those making more than 400, 000. You and I in an earlier podcast have established that’s a very small number of people, right? that’s, you mentioned one or two percent of people making income in that range, so raising taxes on them is going to be a drop in the bucket.
[00:15:54] Isn’t that fair?
[00:15:55] Brian M. Riedl: Yeah, there’s a certain myth. That’s widespread, unfortunately, that if we just tax the rich more, we can eliminate the budget deficits and even pay for all these new, wonderful benefits. The numbers just don’t work. I think, what President Biden proposes, the 5 trillion in new taxes on the rich over the next 10 years, really pushes the boundaries of what you can actually raise.
[00:16:19] In fact, I would argue that he would actually raise far less than 500 trillion or 5 trillion when you account for the economic losses. broadly speaking, I wrote a report last fall called The Limits of Taxing the Rich that showed that even if you set every tax for corporations and the richest 2 percent at the revenue-maximizing rates, and you got rid of loopholes, and you went after tax evasion, you could probably raise at most 1 2 percent of GDP in new revenues.
[00:16:53] Now, the deficit is 7.5 percent of GDP. And I’m saying, if you just said, we’re gonna set every tax rate to collect the most money, without regard to the economy, without regard to anything else, you could get 1 2 percent of GDP. I’m not saying don’t tax the rich. I think everything has to be on the table.
[00:17:12] Everybody’s going to have to take a cut. But there’s a certain myth out there that as long as you just tax the rich, we can shield every family earning under 400,000. And we also don’t have to cut spending. And it’s just mathematically not true.
[00:17:30] Joe Selvaggi: Yes, I remember reading that paper and say, all the revenue, all the income of those making more than 400,000 a year amounts to 2 trillion a year, which is a tax rate of 100% if you took it all, and that still doesn’t solve anything.
[00:17:42] Brian M. Riedl: Oh, and additionally, we talk so much about billionaires. If you seized every penny from every billionaire in America, and I mean their house, their car, their yacht. Every investment they have, you shuttered every business they have. You took their kids’ toys. You took every penny of net worth from every billionaire in America and sold it to fund the government.
[00:18:08] You could fund the federal government one time for nine months. And then it’s gone. That’s it. So again, the widespread myth that if we just tax billionaires, we can have anything we want. It’s just flat-out false, and if you look at places like Europe, they tax the wealthy at pretty much similar rates as us.
[00:18:28] Their extra revenue comes from taxing the middle class. Indeed, okay.
[00:18:33] Joe Selvaggi: So, I want to circle back to that a little bit later, but I want to, I don’t want to bury the lead here. All of our conversations between Biden and Trump, or budgets and deficits, we’re really talking about what we would, and Discretionary spending. That is every year, there are, I guess 12 appropriations, bills that are approved and, one by one, either, yes or no, a little more, a little less, but this is, these are choices.
[00:18:59] Annually made by the Congress and approved by the President, that address a portion of the budget is a choice, discretionary, so, so the name implies. What percentage of the budget is discretionary, that is, what we’re talking about here? And what is the other thing, the non-discretionary, that we’re not talking about?
[00:19:17] So, let’s take that apart for our listeners.
[00:19:20] Brian M. Riedl: Yeah, the discretionary budget has collapsed. back in the early ’60s, about 70 percent of the budget was the discretionary spending that actually went through the budget every year. now it’s closer to about 25 or 30 percent of the budget is discretionary.
[00:19:36] What that means, it’s not that we’ve necessarily cut discretionary spending to an extreme level, as much as the mandatory spending has crowded it out and the concern that people who focus on deficits have is that the discretionary spending is the only part of the budget that Congress and the President have, can really control easily every year.
[00:20:02] Every year, those 12 appropriation bills have to be drafted and passed or those programs mostly shut down. The rest of the budget, the other two-thirds of the budget, is on autopilot. This is Social Security, Medicare, Medicaid, most anti-poverty programs, and farm subsidies. These programs, Congress just creates a law and says, everyone who’s eligible gets it.
[00:20:31] And it spends what it spends. We’re not, it’s not going to go through the budget every year. We’re just going to put it on autopilot for many years and it costs what it costs. Those are uncontrollable. That means unless Congress comes in and with the president changes the law, they’re on autopilot and that’s the part that’s squeezing out discretionary spending.
[00:20:52] It means that policymakers are losing control of the budget. They’re losing control of spending because more and more of it’s on autopilot.
[00:21:01] Joe Selvaggi: So if I do the math, quickly, you, we’ve got $7 trillion of spending and 70% of it is non-discretionary. So $5 trillion is spent without the intervention of Congress, essentially, as you say, on autopilot. Is this right?
[00:21:15] Brian M. Riedl: Yes. Yeah. Discretionary spending is about $1.8 trillion per year out of the $7 trillion. There’s interest. Interest is usually considered part of the mandatory. Some people list interest as a third category. but yeah, of about 7 trillion, 5. 2 trillion of it is just simply on autopilot.
[00:21:34] Granted, that can be controlled, but the President or Congress can’t unilaterally change it. They can’t block a bill. if the President wants to fix entitlement programs, he can’t, unless Congress agrees to pass a bill. Discretionary spending, the president has more control because that actually has to be signed every year.
[00:21:55] Joe Selvaggi: So these are buckets, you mentioned social security, big one, Medicare, Medicaid, big one and, we can, we’ve talked in the past about the silver tsunami, a lot of people retiring talking about 10,000 people a day going into medicare, social security, these kinds of things, as you say, those are growing, and in a sense, eclipsing these other discretionary, spending items.
[00:22:14] When a president presents a budget, or a presidential opponent presents a budget, So how are you going to reduce the deficit? It seems to me this is like the, 8,000-pound gorilla, or 5 trillion dollar, gorilla, or elephant in the room. How is it that nobody seems to be talking about what really is affecting the budget?
[00:22:31] It’s, I know there’s a boogeyman on either side, right? The boogeyman on the right might be, welfare recipients, and the boogeyman on the left might be, the Department of Defense, or, who knows? what do you think? Why isn’t anyone talking about the nondiscretionary, because you say it’s legislatively mandated, but it could be legislatively fixed, is that right?
[00:22:50] Brian M. Riedl: Yeah, in fact, it needs to be legislatively fixed and pared back, because again, it’s totally on autopilot. Like I said, you could, the not, the discretionary stuff, our programs like Defense, Veterans, Education, Health Research, Highways, that stuff goes through the budget, but the stuff that’s on autopilot is sometimes some of the most controversial programs in the government.
[00:23:13] Social Security, Medicare, Medicaid, much of the safety net. Lawmakers don’t want to reform those because it’s controversial. And so if you talk about social security and Medicare, you’re going to have a voter uprising. In fact, a year ago, if you remember, President Biden and congressional Republicans were tripping over themselves to shout that I would never change Social Security or Medicare.
[00:23:40] Well, the problem is the costs of these programs are rising 7 percent per year. Every year, an automatic autopilot, that’s just not affordable. The economy can’t grow fast enough. Tax revenues can’t grow fast enough to keep up with these programs growing 7 percent per year. just to put a number on it, or, because this is what I do, I’m an economist.
[00:24:04] Social Security and Medicare are not fully funded by payroll taxes and premiums. They’re not enough. So every year, these programs run a shortfall that has to be paid for out of general revenues. Last year, the Treasury had to transfer 500 billion into Social Security and Medicare in order to be able to pay all benefits.
[00:24:26] A decade from now, they’re going to have to transfer more than 2 trillion a year into Social Security and Medicare to pay all benefits. So again, just a decade from now, Social Security and Medicare will be running a 2 trillion annual shortfall on autopilot. That’s why the deficit is rising, that and the interest costs, but it’s too controversial for lawmakers to address.
[00:24:51] Joe Selvaggi: I’m listening to you and I’m imagining a critic saying, the problem is, it’s not that the revenues, the cost is going up. But, we keep talking about tax cuts, that seem to make headlines. We’ve cut taxes so much that we’ve impoverished these very useful, necessary programs. Taking a step back.
[00:25:08] On a historical basis, are Americans paying less in taxes, because that’s really all we hear about is tax cuts, taxes for the rich and all. Are we paying less in taxes? And also, who’s paying our taxes? Which Americans are paying the taxes? Is it a shared burden? What’s going on here?
[00:25:26] Brian M. Riedl: The tax code right now raises about 17.
[00:25:30] 5 percent of GDP in tax revenues. That roughly matches the post-1960 average. total tax revenues are about the same as they’ve always been, even with tax cuts. Because part of the thing is, over time, the tax code has provisions that automatically, and gradually raise taxes. And so the effect of the tax cuts we’ve had in 2001 and 2017 was to basically cancel tax hikes.
[00:25:57] And keep revenues at about 17. 5 percent of GDP. So the tax burden is about normal compared to what it’s always been. The revenue collection is about normal. It’s about 17 percent of GDP. Now, certainly, if we hadn’t cut taxes in 2001 or 2017, revenues would have grown on their own closer to 19 percent of GDP, which would be well above the long-term average of 17.
[00:26:26] So there was a scenario by which we allowed taxes to rise to 19 percent of GDP without the tax cuts. Perhaps that would have been the better policy. Moving forward, however, if we extend the tax cuts, Revenues gradually rise to about 19 percent of GDP over 30 years. If we don’t extend the tax cuts I’m sorry, if we extend the tax cuts, they rise to 18.
[00:26:51] If we don’t extend the tax cuts, they rise to 19. So we’ll be between 18 and 19. The challenge is, spending is going to 30 percent of GDP over 30 years. 30. Whether we have revenues at the normal 17, or where they’re headed towards 18, or if we let the tax cuts expire 19, you can’t keep up with spending going to 30 percent of GDP.
[00:27:17] And so I think there’s always a case for putting taxes on the table because you can’t get there on spending cuts alone. But the idea that we could have any sort of tax code that could collect anywhere close to 25 or 30 percent of GDP, I don’t think Americans would like what that tax code looks like.
[00:27:37] So really, it’s ultimately a spending-driven problem. Spending is the moving variable that’s driving deficits, but that doesn’t mean you can’t have taxes be part of the solution, without necessarily doing anything that would really scare Americans.
[00:27:54] Joe Selvaggi: So there are two ways we could go with this. We could talk about how do we curb, the spending growth, but I do want to, I’m sure there’s some listeners out there saying, oh, well, so what?
[00:28:00] Our average has been 18, 17, 18 percent, revenue. Why can’t, we want more government services? Why shouldn’t we as Americans all pay a little bit more? I recently read a piece, of course, it may have been something you wrote, that at the current moment, the top 10 percent of earners, or the top 50 percent pay all, government services.
[00:28:18] Federal, income tax, meaning the bottom 50%, Army, Navy, Air Force, Marine, essentially the average American, pays effectively, zero to the federal government, given that whatever they pay and they get out, at least as much. and yet, everybody thinks, someone else is getting away with murder, despite the fact they’re getting a lot for nothing.
[00:28:34] Who would be paying the additional tax if we go from 18, 19, 25, 28, if our tax caught up with our spending, who’s going to bear that burden?
[00:28:43] Brian M. Riedl: Well again, the deficit over 30 years is going to be about, 10 to 14 percent of GDP, depending on what assumptions you make. You can raise taxes on the rich by 1 or 2 percent of GDP before they basically max out.
[00:29:00] You hit the revenue-maximizing wall. And when people may have trouble believing that, let me reiterate, we already tax the rich at about the same levels as Europe. In fact, our highest-income corporate capital gains and estate taxes are actually slightly higher than the European average. Which means you can’t go that much higher on taxing the rich.
[00:29:22] You can get about 1 or 2 percent. The rest is gonna have to come from the middle class. And the reason that the United States has the most progressive tax code in the OECD is because we tax the rich at similar rates. But as you mentioned, We don’t tax the middle class or poor much at all. The median-earning family in America pays an effective income tax rate of about two percent and now their payroll taxes contribute more, but for the rest of the government, outside of where your payroll taxes are going, Social Security and Medicare, they’re paying a two percent income tax. Ultimately, the bulk of the revenues are going to have to come from the middle class. They’re going to, we’re basically going to have to do it the way Europe does it.
[00:30:06] This is big payroll tax hikes and a VAT. A value-added tax is like a national sales tax that every country in the OECD has, except for us. This gets in the way of the politics, though, because both Trump and Biden are adamant that no one under 400, 000 should see a penny in new taxes. But you can’t get there on just taxing the rich, because the rich already pay the overwhelming majority of the taxes, and there’s only so much higher you can go.
[00:30:39] Joe Selvaggi: Well, again, I’m listening to the inner voice in my head saying someone on the, let’s say more, left of center might say, well, you’ve forgotten one great source of revenue, which is raising corporate taxes. Now, I’ll editorialize and say corporate tax is essentially a myth in that. When you tax a corporation, there’s no guy named corporation.
[00:30:57] All those taxes get passed on to, of course, to shareholders, of course, which are your 401k, right? To employees, there’s less money to give them, and the consumers, the prices go up. I say, if you can’t imagine how it works at IBM, imagine if you tax a cab company and said, okay, you should pay your fair share cab company owner.
[00:31:14] The cab driver is not going to work for last. He, he’s going to struggle. Your fare is going to go up, or the cap company just closed down because they can’t make a profit. So, there is no corporate tax that could just magically come to the rescue.
[00:31:25] Brian M. Riedl: What would you say to that? Yeah, and in fact, the 1 2 percent from the rich I mentioned, includes corporate taxes.
[00:31:32] That is both, that is individual, and capital gains, and corporate, and estate taxes. And the numbers just aren’t that big. even if we restored the 35 percent corporate tax rate that we had up to 2017, which, if you count state taxes would be about a 40 percent corporate tax rate. This would, first off, not only be the highest corporate tax rate in the world, it would be nearly double the average of our trading partners in Europe.
[00:32:04] Double. We would have double the corporate tax rate. But even then, you would raise about 0. 4 percent of GDP. from having corporate tax rates practically double our trading partners. And there’s a reason they cut the corporate tax rate. There’s a reason even Democrats cut the corporate tax rate, which is the same reason Europe has cut its corporate tax rates.
[00:32:27] It’s not because Germany and France love big business. It’s because when the corporate tax rate becomes a global outlier, businesses leave. Money leaves, and companies move abroad. You can’t force the companies to stay in America and the American multinational companies who are competing against all these countries can’t do so.
[00:32:52] If the American company is paying a 40 percent rate and we’re competing against a British company paying a 22 percent rate, we’re going to lose and we’re going to lose jobs and we’re going to lose competitiveness. Furthermore, as you mentioned. The corporate tax rate gets dumped on lower wages, higher prices, and lower stock values in 401ks.
[00:33:16] So, it’s okay to put corporate taxes on the table. In fact, in my budget, I have proposed some changes to corporate tax policy. But you’re not going to close a massive deficit just on corporate taxes. The math doesn’t work, and the economics get ugly.
[00:33:33] Joe Selvaggi: Yeah, well, okay, so we’ve, I think we’ve put to rest all the wild theories of how we’re going to fix this, and when we talk about these growing programs, let’s say Medicare or, Social Security, folks I think in their mind imagine this is all money that they’ve paid out through their lives, and they’re just getting back their money, and that any talk of taking any or reducing any benefit is essentially breaking a promise.
[00:33:59] Share with our listeners, is that, is there any validity to that claim, and what would you do in a sense to tweak or modify such that these programs are not gotten rid of, but perhaps made to grow more slowly or not at all?
[00:34:15] Brian M. Riedl: Yeah, the two of the big myths about Social Security and Medicare are first, that seniors are very poor.
[00:34:21] Of course there’s senior poverty, but on average, seniors are the highest earning, wealthiest group in America. Since 1980, senior income has grown four times as fast as worker income. So seniors on average are doing pretty well, which is why it’s even more frustrating that when you get to the second myth, seniors are not on average just getting back what they paid in.
[00:34:48] and social, and in social security, they get about 15 to 20 percent more than they pay in. Even when you adjust for present value, so when you say, well, what about inflation? What about interest rates? Even when you fully adjust in the present value, dollars are coming out about 15 or 20 percent ahead.
[00:35:06] On Medicare, it’s even more drastic. The typical senior in Medicare will get back triple what they pay into the system, even adjusted for present value. So if you put those together, the typical senior couple retiring today. Middle-earning, senior couple, retiring today, will have paid 1 million into Social Security and Medicare over their lifetime, in net present value, and will get about 1.
[00:35:37] 4 trillion in benefits. All are adjusted into net present value. You said trillion. I’m sorry, Bill. I’m used to trillions. Not millions. They will pay one million in, and they’ll get 1. 4 million back in benefits. And I’m so used to trillions as a budget geek. But still, they’re getting 400, 000 more back than they paid in.
[00:35:59] Lower income and single earners. Get an even higher return. And the problem is you multiply that by 74 million boomers and you see why these programs are going to run 128 trillion shortfall over the next three decades. So,
[00:36:17] Joe Selvaggi: we’re getting close to the end of our time together. I do appreciate your time.
[00:36:21] So, my, my head is spinning with these numbers. As you say, Like it or not, the average family is getting more from the government than they put in, I guess that’s good news for them. And you can see why they would not be eager to see any changes to this, I dare say, a sweet deal.
[00:36:36] So, you don’t see the political will, things aren’t bad enough yet to do anything about it, hence we see a president with A budget proposal that is, really fantasy, it’s either number made up or not addressing the crux of the core of the problem. When will we start to realize that the end is near?
[00:36:54] Which is to say, when will this massive yawning debt start to impose itself on the average man on the street? Will he suddenly wake up and say, 30 trillion was fine, but 40 trillion is not, no good. Or will things like, I’m thinking of course, all this money being spent.
[00:37:09] It has the effect of inflation, of course. The more money you pump in, it’s like steroids or something. we’re all running around after the same goods, with more money. That’s inflation. But also interest rates. I think, they’re borrowing, we’re borrowing, everybody’s borrowing. And the cost of borrowing and other people’s willingness to lend, they’re gonna have to command higher and higher rates.
[00:37:27] This inflation that we see is going to be persistent and interest rates, I think, are bound to be high. Would you agree with that as being the first wave of, the influence of these large deficits?
[00:37:38] Brian M. Riedl: Right. I generally agree with that. I think I would love for us to reform Social Security and Medicare before we have to.
[00:37:45] The problem is, once you feel the pain, it’s too late to do the relatively pain-free reforms. The danger is, right now, we’re at 100 percent of GDP in debt. It’s, we’ve only had, the debt has only been 100 percent of GDP before, during the peak of World War II. It’s well above Europe. And it’s projected to rise anywhere from 170 to 340 percent of GDP over the next 30 years, depending on whether we extend the tax cuts, whether we extend expiring spending programs, and whether interest rates rise.
[00:38:19] Most economists agree that at those points, the financial markets simply can’t lend us enough money. To run deficits that big, again, Social Security and Medicare are going to borrow 128 trillion over 30 years. The question is, can the financial markets even lend us that much money without at least pushing up interest rates?
[00:38:43] And at some point, the financial markets are going to cry uncle and say, we don’t have the resources to lend that much money at low-interest rates. So when interest rates rise, that just makes the debt more expensive because now we’re paying higher interest on our bonds, then you have to borrow more and you get this what’s called a debt cycle.
[00:39:03] When something like that happens is tough to predict. the economists at the University of Pennsylvania at the Wharton School believe 20 years before there is a substantial financial Panic. It could be five years, it could be 20 years, it could be 30 years. It’s really hard to predict because it’s as much a question of market psychology as it is of economic fundamentals.
[00:39:31] At what point do the markets panic that we can’t handle this much debt? But what I can say, without predicting when it’s going to happen, is it has to happen at some point because If the debt goes to two to three hundred percent of GDP, something has to give. The financial markets can’t handle that. So I think what we’re looking at is the financial markets panicking, essentially no longer offering affordable lending to the federal government.
[00:40:02] And that forcing the federal government to close its deficits very quickly by either dramatically raising taxes and or dramatically cutting spending. That’s what I’m trying to avoid having to do that in a panic. A few years down the road. And even, again, I’m listening
[00:40:19] Joe Selvaggi: to what you’re saying, but even now, I was reading that the, the service of the debt that we have now, that 34 trillion, in relatively low, interest rates, the government enjoys, relatively low-interest rates, is now north of 700 billion, which is larger than what we spend on defense.
[00:40:35] So, it’s crowding out all the other services. if our listeners from the left of center think the government is a wonderful thing and ought to be spending more, all those good things and programs it wants to spend on can’t be, grown if this debt is this sort of the, eventually going to occupy half of our, our expenses.
[00:40:56] So, so, if, even if you believe in all the good things government can do, debt is a weight around your neck, while you’re trying to swim. Is that fair?
[00:41:04] Brian M. Riedl: Exactly. The interest on the debt has gone from 350 billion to 663 billion in two years. Over the next decade, interest is going to rise to nearly 2 trillion.
[00:41:18] What that means is a decade from now, under a current policy baseline, where we keep current policies, a quarter of your federal taxes will just go to paying interest on the debt. That means all the federal taxes you pay until April 1st will just pay interest on the debt. it grows even further. Over 30 years, interest on the debt is projected to grow to between half and three-quarters of your federal taxes.
[00:41:46] That’s federal taxes you’re paying that’s not going to fund a social security benefit, a veteran’s benefit, build a highway, feed a poor person. You’re going to have half or two-thirds of your taxes just paying interest. You mentioned interest in passing defense this year. It’s going to pass Medicare next year.
[00:42:05] By next year, interest is going to be the second biggest item in the budget. And by 2042, it passes social security to become the single biggest item in the federal budget. What a waste of our tax dollars. Yeah.
[00:42:20] Joe Selvaggi: Yeah. And for, again, I’m thinking about action items and how to tie this whole conversation up with the flow.
[00:42:24] I don’t know what our listeners will take away. I, we’re certainly not piling on Biden or Trump. They’re both, they both seem to be, equally delusional. if our listeners are looking for some action item, is it a party they should follow? Is it a, or are we looking for leaders and representatives who can speak truth to us and say, okay, look, it’s hard to hear, but when I go to Washington, I’m going to at least do my part to address these larger issues and hopefully make your future, your children’s future, grandchildren’s future, a little safer because I’m addressing what really matters?
[00:42:59] Is that fair? It’s not a party issue. It’s more like, let’s find some, fiscally responsible people to go to Washington. Is that fair?
[00:43:06] Brian M. Riedl: Absolutely. I think if you’re looking for a fiscally responsible party, you’re going to be looking for a long time. both parties have been extraordinarily fiscally irresponsible.
[00:43:15] And the reality of it is, the three main levers to fix the deficit, you’re going to have to fix social security, fix Medicare, and address middle-class taxes. Everything else people talk about can be a part of the solution, but it’s not going to get you close. And what I mean is taxing the rich, cutting defense, cutting foreign aid, defunding Ukraine, immigration, reform.
[00:43:42] Those are all fine to put on the table. They’re not going to get you anywhere close. The three main levers are social security, medicare, and middle-class taxes, and you can decide individually how much of each lever you want to pull. But when you’re looking for that, you’re looking for truth-tellers in Washington who will admit that, and the problem right now is both parties have said No social security reform, no medicare reform, no middle-class taxes.
[00:44:10] So what you need to do is look for truth-tellers in Washington who will at least be honest and say, Look, everything’s going to have to be on the table, including that. We’re not going to get there by taxing the rich or defunding Ukraine by itself. If you can find lawmakers who can do that, those are the ones you want to champion.
[00:44:29] But you also have to remember, Any solution is going to have to be bipartisan. This stuff is too toxic and too controversial for one party to do by itself in a partisan bill. So, if you’re just hoping to get one party to understand the issue, that’s not enough. You really need to get both sides to get this so that they can hold hands together on a grand deal with everything on the table where everybody takes a hit.
[00:44:57] Joe Selvaggi: Yeah, hold hands and jump, right? that’s right. So I think we’ve run out of time. I wish we had a more positive note to end on. I think our listeners are maybe pretty discouraged. They want maybe a simple solution, something they could put on a bumper sticker. We didn’t offer one today, but at least I think they’re a little more informed about the scale and the scope of the problem.
[00:45:17] So thank you very much for your insight today, Brian. It’s really been a useful resource for our listeners.
[00:45:22] Brian M. Riedl: Thanks so much, Joe. It’s been fun.
[00:45:26] Joe Selvaggi: This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute. It would be easier for you and better for us if you subscribe to Hubwonk on your iTunes Podcatcher.
[00:45:37] It would make it easier for others to find Hubwonk if you offered a 5-star rating or a favorable review. We’re always grateful if you share Hubwonk with friends. If you have ideas,comments or suggestions for me about future episode topics, please You’re welcome to email me at hubwonk@pioneerinstitute.org. Please join me next week for a new episode of Hubwonk.
Joe Selvaggi talks with Manhattan Institute Senior Fellow Brian Riedl about how the contours of President Biden’s recently released budget proposal reveal a persistent, bipartisan reluctance to address profound structural deficits.
Guest:
Brian Riedl is a senior fellow at the Manhattan Institute with a background in budget, tax, and economic policy. He has significant experience in government roles, including serving as chief economist to Senator Rob Portman and as a director of budget and spending policy for political campaigns. Riedl’s work at the Heritage Foundation contributed to efforts to control federal spending. He is a widely published author and media commentator. Riedl holds a bachelor’s degree in economics and political science from the University of Wisconsin and a master’s degree in public affairs from Princeton University.
As Pioneer Institute observes Sunshine Week , March 10-16, it is worth remembering the uncommon courage it took for our founders to so publicly and transparently declare their political beliefs and loyalties at a time when Great Britain ruled the waves and the American Colonies. The Founders were indeed risking it all — fortune, honor, and indeed their very lives — to establish a system of self-governance that serves as a beacon of hope to the world.
Unfortunately, our early twenty-first-century America — and Massachusetts — is marked by only partial sunshine. Politicians long entrenched in the halls of power would much prefer to eclipse the public’s right to information.
Massachusetts deserves better. Only by fully honoring the letter and spirit of the laws can we truly claim that moral high ground to which our brave forefathers first lay claim. We call upon the independent-minded people of Massachusetts to join with us in a bipartisan push for greater government transparency.
The Massachusetts Legislature should be subject to an audit by the State Auditor
As has been the practice for decades, the state legislature bypasses the State Auditor and hires its own firm to perform a review of its books and records. That means the public has limited insight into legislative operations because the audit report itself can be shielded from the public records law, from which the legislature has exempted itself. Pioneer supports State Auditor Diana DiZoglio’s effort to audit the legislature.
Eliminate the governor’s office executive order privilege
Since the Massachusetts Supreme Judicial Court’s 1997 ruling in Lambert v. Executive Director of the Judicial Nominating Council, state officers in Massachusetts have fulfilled public records requests “at their discretion,” reinforcing what is — for the average citizen — one of the nation’s least transparent and most onerous systems for obtaining public records. Unfortunately, Gov. Maura Healey has retreated from vows made early in her administration to be more transparent. Pioneer once again calls upon the governor to live up to her promises and forgo her office’s executive order privilege. There is no better time than Sunshine Week to do exactly that.
The Massachusetts State Legislature must be subject to the state’s public records and open meeting laws
The Massachusetts Legislature continues to exempt itself from the definition of “public body” as it pertains to transparency laws. Pioneer believes that the legislature’s exemptions from public records and open meeting laws violate the state Constitution. Article V of our state’s Declaration of Rights requires that the branches of government “at all times” be accountable to the people. Restricting the public’s access to legislative meetings and records fundamentally undermines that basic right.
Lawmakers should make access to Statements of Financial Interests anonymous, easier, and available online
Among the 49 states that require Statements of Financial Interests (SFI’s), Massachusetts ranks last in making such information available to the public. SFIs are critical for boosting public confidence that legislators and policymakers are acting in the public interest rather than their own. Massachusetts requires that those seeking access to SFIs provide a photo ID and it reports their identity to the official whose SFI is being requested. Such practices amount to intimidation, serving only to keep financial information hidden from public view. It’s up to the legislature to change the laws on SFI’s.
Labor Force: Pioneer released LaborAnalytics, a web tool that tracks workforce and unemployment trends in Massachusetts and the nation. With $2.5 billion in available funding in Massachusetts, this tool is a must for policy makers.
340B Program Transparency: Pioneer Life Sciences Initiative (PSLI), led by Dr. Bill Smith has focused attention on abuse in the federal 340B contract pharmacy program. Pioneer has created a website to keep the public informed and quantify the volume and geographic distribution of contract pharmacies for each 340B-eligible entity throughout the U.S.
Hospital Pricing: Pioneer’s Barbara Anthony and Gauri Binoy created a transparency website, the Massachusetts Hospital Relative Price Tracker, that highlights disparities in relative commercial prices among hospitals, with some major institutions charging 25 to 100 percent higher prices compared to the average of all hospitals, despite efforts to control healthcare cost growth in the state.
U.S. Supreme Court Justice Louis Brandeis was the first to popularize the phrase that states “are the laboratories of democracy.” Though each state has its own priorities, as expressed through their legislatures, they all share certain overarching goals:
States that excel in meeting these overarching goals attract and retain residents and investments. They are the foundation for social cohesion and participation in the economy, politics, and a rich cultural life. We are creating one website that will provide transparency on how states are competing in these core service areas. Our audience? Policymakers, the media, advocates and activists, interested citizens, you.
Access our MassWatch transparency tools for a wealth of cutting-edge data organized to enhance understanding of our state economy. And for a link to a wealth of state data resources you can use to learn more about the business of state government, check out our page linking to some of the most useful parts of the mass.gov website.
Tufts Prof. Elizabeth Setren on METCO’s Proven Results
/in Education, Featured, Learning Curve, News, Podcast /by Editorial StaffRead a transcript
Tufts Prof. Elizabeth Setren on METCO’s Proven Results
[00:00:34] Albert: Hey everybody and welcome to another episode of The Learning Curve podcast. I’m your co-host this week, Albert Cheng from the University of Arkansas and my other co-host is Alisha Searcy. What’s up, Alisha? Good to see you again.
[00:00:50] Alisha: Great to see you too. How are you?
[00:00:52] Albert: Doing fine.
[00:00:53] Alisha: You doing all right too. I am doing well. I’m over this virus. If anybody has had it, oh my goodness, but I’m free again. All right. Yeah. Good deal.
[00:01:03] Albert: Well, don’t know if you’ve we’re able to pay attention to the news being under the weather, but I’ve got a news story for you to, kick us off.
[00:01:09] Albert: So this is a, uh, an article that’s summarizing what I guess is some Instagram posts that some of our school leaders and teachers are, posting about addressing behavior in school. And I mean, there’s a lot to it, but I’ll, maybe say some highlights about what they’re observing.
[00:01:26] Albert: 1 of the observations is that they’re getting a little skeptical over how many kinds of behavioral therapy works in trying to address class, you know, for classroom management for addressing some of the special needs that our students have. You know, this actually reminds me of a couple of recent articles that I’ve read where folks are being critiqued of just the kind of behavioral therapy and psychology approach to trying to deal with misbehavior.
[00:01:56] Albert: And actually reminds me of something I think we talked about a while ago. [00:02:00] mentioned, I think in a conversation with you an article that Martin Luther King wrote way back in the day when he was still a college student. And he said that education is intelligence plus character. And you know, this article really reminded me of that because it really seems like the way these teachers and school leaders are describing.
[00:02:19] Albert: We’ve really gotten away from the character thing and we’ve reduced character development to just behavioral therapy. And you know, we need to get back to a place, I think what, these folks are arguing where we really tend to shape kids to become the right people to love the right things, to recognize that there are certain moral obligations that they have you know, to do that.
[00:02:42] Albert: More than just simply conditioning them to act a certain way without really changing who they are as people.
[00:02:50] Albert: Anyway, I think there are some thoughts that these school leaders and teachers are offering from the front lines. And I think it’s really worth our consideration.
[00:02:58] Alisha: Absolutely. Very [00:03:00] interesting piece. my heart goes out to educators right now who are classroom teachers and, school leaders who are having to contend with significant behavior issues.
[00:03:10] Alisha: I think there’s a lot going on, right? They’re contending with The aftermath of Cove it. They’re dealing with all the social issues that kids are coming to school with social media, all these things. I also cannot forget that these Children are microcosms of society, right? And they’re emulating what they’re seeing in their parents and adults.
[00:03:31] Alisha: And frankly, I think as a country, we could probably use some lessons and reminders and character and how to treat people. And as you said, to love the right things so it’s, very difficult, and again, my heart goes out to educators who are trying to manage this, educate kids, and deal with little people who are a representation of what’s happening in the world.
[00:03:52] Alisha: And I think you’re right. We can think about the work of Dr. King and just remind ourselves of the importance of character and good [00:04:00] people and being that as adults and making sure that we’re modeling that for children in schools.
[00:04:06] Albert: Yeah, I think you nailed it. We need to be role models and have more role models for how we got to act and be.
[00:04:13] Alisha: Yes, and speaking of kind of what’s happening in society the article that I came across this week is proof points. Only a quarter of federally funded education innovations. Benefited students report says. This was an interesting article about how essentially 4 billion has been spent over the last 12 years or so in research and finding innovative programs that work in K-12 education.
[00:04:44] Alisha: And the results aren’t good. saying that there’s about a 26 percent success rate in the programs that have been implemented and a couple of those programs. One of them is a reading program. [00:05:00] Another one has to do with kind of early interventions. One is called building assets, reducing risk, or all about catching students before they start to fail. And so what I appreciate about this article, though, number one is it acknowledges that we’re spending money federally on research and development and trying to figure out what works in our schools. What I found interesting, though, is, you know, you may think 1.4 billion is a lot of money. If you know anything about the federal budget, you know, that’s a drop in the bucket. And if you compare that to, let’s say, defense spending we spend about 90 billion a year on research. And when it comes to health research, we spend about 50 billion a year.
[00:05:46] Alisha: So if you’re only spending 1.4 billion over 12 years in education, I think an argument could be made that more needs to be invested. I’m not bothered by the 26 percent success rate in terms of [00:06:00] Finding out what works and what doesn’t work. Number one, we’re not spending as much money comparatively, but number two, I think you have to invest these funds to figure out what’s working.
[00:06:10] Alisha: But to this point about kind of behavior, I think what we can never forget is it doesn’t really matter what the program is. If you’re not dealing with the social issues that kids are coming to school with the right behavior issues that teachers are having to deal with. Sometimes the program itself doesn’t matter.
[00:06:27] Alisha: You still have to deal with some of these issues. So an Interesting piece. I hope that the U.S. Department of Education will continue to invest these dollars. I think that over the years, particularly through the Obama administration, I think that we did some really good things in terms of innovation.
[00:06:44] Alisha: And so I hope that will continue making those investments. But interesting. Yeah.
[00:06:47] Albert: Yeah. You were talking earlier about how we adults, are part of the problem too. And you know, it just reminds me of how the other side of the implementation issue is it’s tough for school districts and [00:07:00] school systems to do new things.
[00:07:01] Albert: There’s definitely a lot of inertia and they all have their own local politics. And so definitely a lot of challenges to implementation which is why you might find something an intervention or program that works somewhere and flops in another location. So, lots of challenges to really reform education and doing our part to make it better. Exactly. Thanks for sharing that and stick with us, ’cause coming up on the other side of the break, we’re gonna have Dr. Elizabeth Setren talk to us about her research, speaking of which, on Boston’s METCO program. So stay tuned.
[00:08:10] Alisha: Dr. Elizabeth Setren is the Gunnar Myrtle Assistant Professor of Economics at Tufts University. Before joining Tufts, she completed a postdoctoral fellowship at the National Bureau of Economic Research. Her research in the economics of education includes studying the academic impact of Boston’s charter schools, While her most recent work focused on the long-term effects of Massachusetts’ voluntary integration METCO program.
[00:08:35] Alisha: Professor Setren’s research has been covered by the New York Times, Wall Street Journal, Boston Globe, Boston Herald, the 74, NPR, and other national news outlets. Setren earned her BA in mathematics and economics. With highest departmental honors summa cum laude from Brandeis University and received her Ph.D. in economics from M.I.T. Welcome to the show, Professor.
[00:08:59] Albert: Dr. Setren. [00:09:00] I want to add my welcome for you being on the show. So thanks for being here. Thanks for having me. you’ve got this study that’s out on METCO so let’s why don’t we start with what METCO is just for some of our listeners who are unfamiliar with the program, the Metropolitan Council for Education Opportunity. It’s the largest and second-largest continuously operating voluntary school desegregation program in the country. And actually a model for a few other voluntary design programs currently in existence. So tell us a little bit about the background of this program.
[00:09:32] Albert: What do you know about its history? What communities does it draw from? Where is it? It sends students to the size and yeah, just give us some of the background detail.
[00:09:41] Elizabeth Setren: So MECO started in 1966 in the Boston area with eight suburban school districts in the Boston metro area that elected to accept students from the city of Boston to their suburban schools. The premise is that their suburban [00:10:00] resident students would benefit from increased diversity and exposure to people from other backgrounds in their school district and some families from Boston wanted to choose that option for their children.
[00:10:13] Elizabeth Setren: It’s been running continuously since it started in 1966, and the enrollment has been rather stable the past bunch of years with around 3, 100 students in the city of Boston. And then there’s a much smaller program in the city of Springfield and for surrounding suburbs in that area.
[00:10:33] Albert: So let’s get into some of the I guess descriptive statistics, if you will, of the students, you know, just the student composition of who’s participating. Pioneer Institute in 2022 released a research report and mentioned how METCO students make up more than 40 percent of the African American population in receiving districts.
[00:10:52] Albert: In some districts, METCO students represent more than two-thirds of the African American population and more than 20 [00:11:00] percent of the Hispanic population. So, talk about who’s participating, who’s enrolling in this program what’s their demographic background, and other things you know about them.
[00:11:08] Elizabeth Setren: Sure, so historically METCO has been predominantly Black enrollees and this comes from the legacy of a bunch of great black activists that were involved in the founding of MECCO, but over time it has become more diverse And in the period of my study Which is roughly the past 20 years a little longer when we look into the college and labor market outcomes But roughly in the past 20 years little over 70% of the students coming through the METCO program have been Black or African American, about 20 percent Latinx, and about 4 percent Asian. and I know it’s a priority of METCO now to make METCO representative of the vast in the city of Boston. Yeah. And then in terms of the suburban peers, yes, as you mentioned, a lot of these suburbs [00:12:00] are predominantly white students in these schools with very low proportions.
[00:12:05] Elizabeth Setren: I’m seeing in my sample about 10 percent of the residents are black during this time period and about. 6 to 7 percent are Latinx and 10 percent Asian. So, the METCO program is really adding a lot of diversity to these predominantly white suburban communities.
[00:12:22] Albert: Yeah. So let’s dig into your study a little bit more.
[00:12:25] Albert: You just kind of gave us a description of who’s participating. But you actually availed yourself of the wait list that was there. know, I think there’s, an annual report released in, at least in the 2019, or 2020 school year. There were, nearly 1,400 applications that led to 335 new enrollees.
[00:12:45] Albert: So, I know we economists like that. we like things allocated, with wait lists and allocated by lottery. So could you talk about your analytics sample, if you will, you know, who’s on the waitlist and what that allows you to do?
[00:12:57] Elizabeth Setren: Until just about a few years [00:13:00] ago, MECCO admissions was run by a wait list that was set up to be first come first served.
[00:13:06] Elizabeth Setren: Meetings could apply as early as birth. So there were people would joke that after you bring your baby home from the hospital, you should stop by the MECCO office to sign yours. Um, I don’t know how often that happened. Actually, I could check in the data how applicants were but some are certainly very, very young with the most common application ages being zero to one.
[00:13:30] Elizabeth Setren: So infants and one-year-olds. And I think that reflects also the popularity of the program, which is reflective of that. long waitlist. Now, a few years ago, they switched the waitlist. I helped work with MECCO leadership they’re very interested in kind of moving MECCO into a new era uh, with more access and accessibility to families in Boston.
[00:13:53] Elizabeth Setren: So it can be more representative of, folks in Boston. And so now it is a lottery system. That’s where we are. [00:14:00] digitally, but historically it was this long waitlist. So families would apply often very early on. And then once their child was old enough for kindergarten or first grade, they had the potential to be referred from the waitlist to a specific suburban district.
[00:14:16] Elizabeth Setren: And so I use that waitlist assignment system in my study design. So other research prior has compared Boston students in general, those in BPS, and maybe also those in charter schools. It compared people living in Boston going to other school options to METCO students.
[00:14:40] Elizabeth Setren: And the issue with that is there might be different characteristics of families that choose to apply for METCO. Perhaps they have knowledge of the program that could reflect. Some social capital awareness of how to navigate the education system could also help their student do better in school, perhaps.
[00:14:58] Elizabeth Setren: So [00:15:00] we want to make sure any comparison of how MECO students are doing has a proper comparison group. So students from similar families with similar advantages and disadvantages. And that’s why the wait list comes in handy as a research design. It allows us to find a proper control group. So we’re comparing the outcomes of students who applied to the program and were able to be admitted to students who applied to the program and maybe applied a few days later than their peers.
[00:15:32] Elizabeth Setren: And as a result of that, we’re not admitted and we can check for this and some really rich outcomes and data to see that the students who applied and got in and applied and didn’t get in have very similar characteristics in terms of parents education in terms of their economic status.
[00:15:53] Albert: Great. So, well, I’m curious to see if this worked. I think, Alicia, you want to ask about that.
[00:15:58] Alisha: Yeah. So, [00:16:00] speaking of the results I want to talk a little bit about that. According to your research, Professor, 20 years of longitudinal data show that students participating in METCO experience substantial gains in math and English language arts.
[00:16:14] Alisha: On the M. C. A. ‘s test scores, a low high school dropout rate, and a 94 percent graduation rate. Increased school attendance despite long trips to and from school, higher S. A. T. scores, increased college aspirations, enrollment, and graduation rates increased income and employment, and a lot more.
[00:16:34] Alisha: So can you unpack more of these long-term academic benefits that METCO students experience?
[00:16:40] Elizabeth Setren: Sure. Thanks for sharing. First, I want to explain that the modal student who participates in METCO is getting admitted for kindergarten or first grade, and they’re sticking with the suburban school district that they’ve been assigned through 12th grade.
[00:16:55] Elizabeth Setren: So when we think about the impact of METCO, not all students in the sample, of course, some [00:17:00] students move or make different decisions, but most students Students will be entering kindergarten or first grade, and be in the suburban school district for the entirety of their primary and secondary school career.
[00:17:12] Elizabeth Setren: And what we see in terms of the impact of that I think the most striking finding is that it dramatically increases their aspirations to go to college by about 20 percentage points. So this. It was their their peers who were admitted and didn’t get in about 50 percent of them will say they aspire to go to a four-year college, but upwards of 70 percent and more in the Mecco program say that they aspire to a four-year college.
[00:17:42] Elizabeth Setren: And this question is asked in 10th grade by all students in Massachusetts when they take their standardized tests now also impressive. Not only is Mecco shifting college expectations, but. the students are able to follow through with that. So students are about 20 percent [00:18:00] points more likely to enroll in a four-year college.
[00:18:03] Elizabeth Setren: And some of this is driven by students who would have otherwise gone to two-year colleges shifting to four-year, and some of it is coming from students who otherwise wouldn’t have gone to any college going to a four-year college and they are also more likely to persist through the four-year colleges and to graduate so they graduate about a 10 percentage point higher rate than their peers who applied to Mecco and were not admitted.
[00:18:30] Alisha: That is significant. So interestingly too you’re finding that boys in the METCO program seem to benefit more than girls and that first-generation college students appear to be getting more out of participating than those who have parents with college degrees. Can you talk more about these gaps among METCO students?
[00:18:50] Alisha: And what you’re finding?
[00:18:52] Elizabeth Setren: Yeah, so I’m not sure that I would frame them as gaps but more so as who’s benefited most from the program. [00:19:00] And when we look at it by different characteristics, it’s who has the most to gain in terms of where they were at baseline, what their performance would have been had they not participated in the program.
[00:19:11] Elizabeth Setren: Students who have the most to gain are. benefiting the most. Some of that is mechanical, right? So if I have an A plus average, and I go to a different type of school, that school can’t boost my test score that much beyond an A plus. You’d see only minor gains if they were gains at all. But if students start with a C average, there’s going to be a lot more room for growth.
[00:19:33] Elizabeth Setren: So we see the same thing with these students. students. So students from first generation who would be the first students who would be the first generation in their family to go to college. Their peers who don’t get into METCO start off with a much lower expectation of college-going. And so METCO for them, there’s much more gains to be had.
[00:19:52] Elizabeth Setren: You’re starting with the population that, 50 percent of them aspire to go to college versus the population. Where closer to [00:20:00] 75 percent aspire to go to college, which is what we see in the pool of applicants. Who had a parent at least one parent to graduate from a four-year college? Similarly, boys in general have lower educational attainment in the U. S. and also lower academic performance. So they have more to gain in terms of test scores and in terms of college going than the girls.
[00:20:27] Alisha: Thank you for that clarification. so my final question going back for more than a decade, authors and researchers like Susan Eaton and Pioneer Institute have written about METCO and you’ve now produced what we would consider the gold standard research on this program’s performance.
[00:20:45] Alisha: So we thank you for that. And so as a researcher, can you talk about what you would like to see state policymakers do with the growing body of evidence of METCO success? And if you think any additional research. Should be done. What? areas you’d like to [00:21:00] see that produced in?
[00:21:01] Elizabeth Setren: First, thank you for the kind words.
[00:21:03] Elizabeth Setren: I certainly admire the work that’s come before me, and there’s been a lot of great qualitative work. Professor Eden’s work in particular about The METCO program that’s really told the narratives and stories of students through the program, and my emphasis and focus is much more on quantitative research to get at kind of the big picture trajectories of how students are doing in the program, but it can’t tell those granular stories the way that qualitative researchers can.
[00:21:31] Elizabeth Setren: In terms of future research, I have a lot in the pipeline. So I have another project where I’m looking at the impact of METCO on the suburban peers. So students who live in these suburbs have classmates from Boston as a result of the METCO program. When programs to promote diversity are expanding or being put in place a common concern that parents have is that that program [00:22:00] might increase disruptions to the classroom.
[00:22:02] Elizabeth Setren: There might be more behavior issues. And using a similar data set with the past 20 years of schooling data from All 33 districts in the Boston metro area that participate in MECCO, I find a very clear answer that there’s no impact on the suburban students, the suburban residents, their academic outcomes, on their behavioral outcomes, so attendance suspension, and more importantly, they’re not in classrooms with any more disruption.
[00:22:33] Elizabeth Setren: So they’re not more likely to be in a classroom with a higher Suspension rate for their peers in the class and they would otherwise, and I think this is important for policymakers as many schools across the country think about using school assignment to promote inclusion and equity and access. to various schools that this, I hope, can shed some light on a common concern that parents may have.[00:23:00]
[00:23:00] Elizabeth Setren: In other research, I’m interested in the even longer-run impacts of programs like MECCO and integration in general. So, This study that we’re talking about today follows the participants of the programs of students from Boston, it follows them through age 35 in the labor market, and you know, so I see them graduate college at a higher rate, I also see that their earnings are higher largely likely due to the fact that they have a college degree, they can garner higher wages.
[00:23:31] Elizabeth Setren: But my next study that’s in progress looks at the social and civic impacts of the METCO program, both on the urban participants and also the suburban peers. So, are students more civically engaged, more likely to vote, more likely to register with one party or another, or independent? Are they more likely to donate to political campaigns, particularly campaigns of people of [00:24:00] color?
[00:24:00] Elizabeth Setren: And also how does it affect where students are alumni choose to live as an adult? So are they choosing more diverse neighborhoods are Mecca alumni are they moving to the suburban schools that they attended at a higher rate? And does it affect the rate of intermarriage and social mixing than what we would have seen otherwise in cohorts that aren’t exposed to MECO peers and MECO applicants that don’t get admitted?
[00:24:28] Elizabeth Setren: And in terms of policy implications, we’ve seen in the recent, about past four years, really an influx of school districts and school systems that are interested in rethinking school assignment and how to promote equity and access and diversity within their schools.
[00:24:46] Elizabeth Setren: And so I think METCO Research. It can help policymakers and planners in Massachusetts with this specific program. But my hope is, is that it also sheds some light on questions that other districts and other school [00:25:00] systems may be asking as they think about how to increase this. I think one of the biggest takeaways is that this increase in diversity, increase in exposure to peers and families that have higher rates of goals towards, going to college and it seems to generate really large impacts for these students.
[00:25:22] Elizabeth Setren: It’s hard to know exactly. You know what component of the MECO program leads to these specific findings. But I think one really striking finding is that for students who didn’t have parents that went to college, now they’re in an environment where college is a lot more common among their peers and it’s a lot more expected.
[00:25:42] Elizabeth Setren: And so I think, it speaks to the potential gains from being exposed to more diverse student bodies with higher goal setting towards college.
[00:25:51] Alisha: Wow, very telling. I think those of us who support school choice and understand what happens when families [00:26:00] have options and how it could change the life trajectory of a child. I think your research has absolutely pointed that out. And to your point, I hope that policymakers across the country will really learn from this and see what’s possible when you give kids options.
[00:26:15] Alisha: Thank you so much, Professor, for being with us today.
[00:26:17]Elizabeth Setren: Thank you so much for having me.
[00:26:19] Albert: Thank you, Dr. Setren.
[00:26:28] Albert: Keep in peace when the day is done, that’s what I mean. This old world is a new world and a bold world for me.
[00:26:46] Alisha: Yeah, great interview. I really enjoyed the conversation as well. Definitely. Well, before we close out here’s the tweet of the week, which actually comes from Marguerite Rosa and she has a tweet uh, I mean, they’ll read the tweet. Perhaps it’s no surprise that some [00:27:00] district investments are producing impressive growth, and in others, the effect has further declined.
[00:27:05] Albert: Here’s Illinois, and if you look at the tweet, you’ll see a nice scatter plot. It really, you know, what, Dr. Rosa is talking about is the end of ESSER. we know these funds are approaching the deadline school districts have to spend and they’re drying up. But you know, it looks like Marguerite Rosa has done some work or is referencing some work about the impact that the funding’s done.
[00:27:24] Albert: And I know, Alisha, you were talking at the beginning of the show about investing in education and we’re talking about some of the challenges associated with that. Well, I think this tweet sums up another part of the challenge. You know, if you look at that spreadsheet tweet or the scatter plot on the tweet, I should say there’s a lot of districts that spend a lot of money and made a lot of improvement.
[00:27:44] Albert: A lot of districts spent a lot of money and didn’t make much improvement. Yeah. A lot of districts spent really little money and made no improvement, but a lot of districts spent little money and made a lot of improvements.
[00:27:55] Alisha: So, lots of variation. All over the place.
[00:27:56] Albert: Yeah, we’re all over the place, and I think that just underscores the challenge [00:28:00] of using money well, making sure targeted well spent in the right places that actually contribute to student learning and student growth.
[00:28:08] Albert: Anyway, take a look at that tweet and some of the other charts and data that she has.
[00:28:13] Alisha: Yeah, I love her work. I went through one of their courses through Georgetown and she does phenomenal work and I think makes a great point. Right. And she would say uh, if districts ensure that they focus on their return on the investment, and put those dollars where they know they’re going to get a return and measure it along the way, we can get better.
[00:28:33] Albert: Well, that brings us to the end of the show. Thanks, Alisha for co-hosting with me for another week. Absolutely. Always good to be with you, Albert. And I hope you stick with us and tune back in next week. We’re going to have Professor Ronald Mellor, who’s a distinguished professor of history at UCLA and the author of Tacitus, the classical tradition.
[00:28:55] Albert: So join us next week for that interview and hope to see you all [00:29:00] then. See you then.
This week on The Learning Curve, University of Arkansas Prof. Albert Cheng and guest co-host Alisha Searcy interview Tufts University Prof. Elizabeth Setren. Prof. Setren discusses her recent study of METCO, a pioneering voluntary school desegregation program under which Massachusetts students in Boston and Springfield are bused to surrounding suburban districts. She discusses METCO’s history, the academic performance of students in the program, enrollment challenges, long-term benefits, and disparities among students. She urges policymakers to make evidence-based policy decisions and calls for further research to enhance the program’s effectiveness.
Stories of the Week: Albert analyzed an article from Your Tango about a former principal’s declaration of how schools need to focus more on academics and less on behavioral issues; Alisha discussed an article from the Hechinger Report on federally-funded education innovation.
Guest:
Tweet of the Week:
https://x.com/MargueriteRoza/status/1768414072507084890?s=20
Biden’s Budget Breakdown: Pragmatic Progress or Political Posturing
/in Featured, News, Podcast Hubwonk /by Editorial StaffClick here to read a transcript
Biden’s Budget Breakdown: Pragmatic Progress or Political Posturing
[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Last week, President Biden unveiled a budget plan totaling nearly 7 trillion in spending, with 5 trillion in estimated tax revenue, thus projecting a 2 trillion deficit. In response to concerns about escalating federal debt, the president’s representatives have reassured the public that the proposal aims to shrink the by reversing Trump-era tax cuts for the wealthy, while also lowering costs for middle-class families.
[00:00:34] Critics argue that these reforms fail to effectively address the significant revenue shortfall and overlook necessary structural changes to curb spending. Does President Biden’s budget proposal effectively steer the federal government towards a balanced approach suitable to our current era of peace and prosperity, or does it resemble more of a collection of campaign promises, sidestepping deep-seated structural deficits that are politically inconvenient to tackle in an election year?
[00:01:04] My guest today is Brian Riedel, Senior Fellow at the Manhattan Institute, specializing in budget, tax, and economic policy. With extensive experience as Chief Economist to U. S. Senate Leadership, Staff Director for the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth, and Budget and Policy Advisor for two presidential campaigns, Mr. Riedel brings profound insights into the intricacies of the federal budget process. He will evaluate President Biden’s budgetary approach in comparison to recent administrations and provide his assessment on whether the proposal is likely to fulfill its pledges, as well as offering a well-crafted initial step towards mitigating the growth of national debt.
[00:01:47] When I return, I’ll be joined by Senior Fellow at the Manhattan Institute, Brian Riedel. Okay, we’re back. This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by Manhattan Institute Senior Fellow, Brian Riedel. Welcome back to Hubwonk, Brian. Thank you.
[00:02:03] Brian M. Riedl: Glad to be here. Thanks, Joe.
[00:02:04] Joe Selvaggi: All right. I’m very happy to have you back.
[00:02:06] We’re talking in some, no small part, current events. We’re going to talk about budgets, budgeting, largely based on the fact that, the president last week presented, a budget proposal for the upcoming fiscal year. We’ve heard some of his, remarks in the State of the Union, and we want to get past all the politicking and all the negative partisanship and get to some substance.
[00:02:28] This presidential race is almost six months away. And, so we’d like to cut through the fog and offer our listeners some sort of tangible policy outlines that they can make an informed choice when they go to the ballot in November. So let’s get started. We did see a policy budget proposal, but it was for a year that we’re already in.
[00:02:49] Am I right? Didn’t the fiscal year begin last year sometime, like, in September?
[00:02:53] Brian M. Riedl: We have been operating on a continuing resolution, basically, for discretionary programs now for half of the fiscal year, which is absurd. Basically, we’re just keeping last year’s spending on autopilot for discretionary appropriations.
[00:03:06] The president’s budget that came out is for the year starting on October 1st, 2024, so they have about six months to try to get their act together before the next fiscal year starts. It would be helpful if they’d finish the budget for the last fiscal year first.
[00:03:21] Joe Selvaggi: Yes, indeed, but better late than never. So let’s forget the fact that it’s six months late.
[00:03:26] Let’s talk in broad terms. How big, for our listeners who don’t track this all the time, how big is, how much does the federal government spend in a year?
[00:03:35] Brian M. Riedl: The federal government spends roughly 7 trillion dollars a year, which is an enormous amount of growth. It’s about 23 percent of the economy. It has historically been closer to about 20 percent of the economy since 1960. And it’s bumped up to really about 24 percent of the economy in the last couple of years. 7 trillion is a huge number. It’s more than people can imagine. So one number that I use is that the federal government spends about 50,000 for every household in America.
[00:04:10] You’ll decide for yourself if you’re getting your money’s worth.
[00:04:13] Joe Selvaggi: Okay, fair enough. So we’re going to talk a lot about debt and deficit today, but we understand, that’s what they spend, but they take in a certain amount in revenue. So, to define our terms, we’re going to talk about debt and deficit.
[00:04:24] First, let’s talk about the deficit, which is, these are late terms, is the difference between what they spend and what they take in. What is the amount of the deficit this year? In other words, how much less will they be taking in revenue than they spend?
[00:04:37] Brian M. Riedl: Well, in the fiscal year that ended about six months ago, the government ran about a 2 trillion deficit.
[00:04:44] They reported 1. 7 trillion, but there was basically an accounting glitch of 300 billion that got incorrectly reclassified into the wrong year. The debt rose by 2 trillion last year. The deficit was 2 trillion. We’re on pace to continue it being anywhere between 1. 7 and 2 trillion this year. And then it starts to rise even more over the next couple of years.
[00:05:09] Economists look at the deficit as the percentage of GDP, the percentage of national income. It’s about seven percent of GDP, which is more than double the average of about three percent of GDP. It’s a number economists are really concerned about. They will tell you that seven and a half percent of GDP deficits are unsustainable.
[00:05:30] And it’s also worth noting that the deficit doubled last year. In one year, despite peace and prosperity, which has never really happened before, to run deficits this big in peace and prosperity. So economists are quite alarmed right now. They will tell you that you should not have deficits surging this fast when the economy is growing and we’re not involved in a major war.
[00:05:55] Joe Selvaggi: So, again, to define the terms for our listeners, we borrowed a trillion dollars that we didn’t take in revenue, so that added to an existing, cumulative debt that we’ve amassed to this point. Is that roughly, I think, I want to ask you, I think it’s 34 trillion?
[00:06:10] Brian M. Riedl: Yeah, well, last year we spent 7 trillion and collected 5 trillion, so we had to borrow 2 trillion.
[00:06:18] That 2 trillion that we had to borrow last year to pay the bills, added to the debt, and the debt cumulatively is now about 27. 5 trillion, the debt held by the public. So every deficit every year just adds up to the total debt.
[00:06:36] Joe Selvaggi: Okay, so this is the last year of Biden’s first term. He may get a second, we don’t know, but how does this run rate compare with past presidents?
[00:06:46] Whether we want to talk about how much debt is accumulated in the four or eight years they serve, or if we want to talk about structural deficits, what is the typical, difference between revenue and money spent?
[00:06:57] Brian M. Riedl: Yeah, I think you could, there are different ways to look at it. you could just look at the total deficit and say the deficit has averaged about 3 percent of GDP for the last 60 years.
[00:07:07] President Biden is currently running deficits of 7 percent of GDP even after the pandemic. That’s about twice as big. The other way economists often like to look at it, and the way that I’ve analyzed it, is I measure the cost of legislation under every president because there are a lot of parts of the deficit the president doesn’t have much control over, because a lot of the government is on automatic autopilot.
[00:07:33] It’s really hard for anyone to really control it. It just happens automatically, and the president can’t unilaterally change those parts of the deficit without going through Congress. If you measure the actual legislation signed by the president, Biden has already signed legislation and executive orders adding roughly 5 trillion in 10-year deficits.
[00:08:00] That is significant, to do that in about three years. By contrast, President Trump added about 8 trillion in four years. And all of those numbers dwarf past presidents. President Bush and President Obama were lower than those numbers over the long term.
[00:08:21] Joe Selvaggi: Sure. Okay. So, again, you mentioned, President Trump.
[00:08:24] Again, that’s the Biden’s opponent. you said he spent 8 trillion. That seems like a bigger number than 5 trillion. And so we’re going to say, we don’t play favorites here. We’re an equal opportunity critic. What about though, when we talk about Trump running up those eight trillion? Can we attribute most of that, or some of that, or a good portion of that to the fact that he was presiding over a desperate lockdown and all the stimulus money that was needed to help us get through a pandemic?
[00:08:50] Brian M. Riedl: Some of it, yes. So again, President Trump signed legislation with a net 10-year cost of 7. 8 trillion. Half of that was related to the pandemic, 3. 9 trillion. But you also had 2 trillion in tax cuts, 2 trillion in discretionary hikes, and a few small offsetting differences. So, Even without the pandemic, you had about four trillion dollars over 10 years.
[00:09:16] Now you can still say, well, four trillion, that’s not that bad when you compare to other presidents. But don’t forget other presidents have costs. of emergencies too. President Biden was responding to the pandemic, so his number was up a little bit. President Bush had 9/11 and the Great Recession.
[00:09:35] President Obama had a Great Recession that he was responding to. So it’s not like we can only adjust President Trump’s numbers. The last four presidents have all had deep recessions or wars that drove up part of their costs. That being said, again, President Bush had about 7 trillion over 8 years. Obama had 5 trillion over 8 years.
[00:10:01] Trump had 8 trillion over 4 years. and like I said, President Biden’s a little bit behind Trump’s pace. but he’s about where Trump was at this point when the pandemic made it worse.
[00:10:12] Joe Selvaggi: Well, I’m glad you brought all those other crises up because, as you mentioned, it’s rare that we have a time like we’re in now with no wars, no pandemics, no problems.
[00:10:21] And yet the president now is proposing a budget that seems to continue on pace to a 2 trillion deficit. Yeah. Forward. What does, let’s say, any of the, you’re in, policy world, you’re in wonky land. What do policy advocates, those people who support this kind of approach to the president, what do they say is the excuse, effectively, for spending two trillion dollars that you don’t have?
[00:10:44] Brian M. Riedl: The argument they will give is that it’s too hard to cut the deficit without doing significant damage to priority benefits Or, raising taxes on people they don’t want to raise. So there’s a, the cost of reducing it is too high. There’s also a case, some will say, that deficits don’t matter because Americans haven’t felt the pain yet.
[00:11:08] Interest rates have risen over the past couple of years, but they will argue that interest rates are coming back down. I think these views are strongly misguided, but there’s a certain view that the pain of deficit reduction is too great and we haven’t had a fiscal crisis yet, so what’s the worry?
[00:11:25] Joe Selvaggi: Okay. All right. So we’re going to try to whip up a little bit of worry, at least based on a sober analysis here. I’ve heard again, once this budget came out, I heard some of the president’s spokespeople. I’m thinking of the guy, Jared Bernstein, who I think was a Republican. And, saying, look, we’re actually helping here.
[00:11:47] We’re reducing the deficit but again, I looked at what I could find and I don’t see any reduction in deficit. What are they presenting as deficit reduction and what measures are they using to say, yeah, if you squint just right, this number, this deficit is going down because of this budget?
[00:12:05] What are they basing that on?
[00:12:06] Brian M. Riedl: What they’re saying is that the budget includes 5 trillion in new taxes and 2.5 trillion in new spending over 10 years, and they’re saying, well, look, if we raise taxes by 5 trillion and we raise spending by only 2. 5 trillion, then the net effect is taxing 5 trillion more than spending.
[00:12:29] We will reduce the growth of the deficit. Not the deficit itself, but the growth of the deficit relative to the baseline by two and a half trillion over 10 years. There are a couple of problems with that. The first is, I’ll be blunt, the numbers are fake. The president has endorsed extending the 2017 tax cuts for all families earning under 400, 000, but he leaves out the 2 trillion cost of this policy.
[00:13:01] So there’s a 2 trillion tax cut extension that he doesn’t have. Additionally, he proposes extending the child tax credit to the older 2021 levels permanently, which was back when it was 3,000 or 3,600. He only accounts for the first year’s cost of it. Additionally, he assumes placeholder numbers on discretionary spending, which is the annual appropriations that go through Congress for programs like defense and veterans and education.
[00:13:32] He assumes dramatic cuts deep into the future. He’s all but said are just fake placeholder numbers. If you adjust for these, that’s about six trillion dollars in gimmicks. So the two and a half trillion dollars in deficit reduction is really a deficit increase when you adjust for his own proposals to extend the child credit, extend the 2017 tax cuts for those earning under 400, 000, And keep discretionary spending on its current pace.
[00:14:03] So, really, the deficit would be rising above the baseline, not falling, if the numbers were presented honestly.
[00:14:11] Joe Selvaggi: Again, I want to include, I don’t want this to be a, appear to be a partisan critique. For what we know about Trump, or, let’s say, a future Trump administration, I don’t want to overgeneralize, but my analysis suggests that they would, I don’t want to go too far down this rabbit hole, but in 2025, we have what we call a fiscal cliff where all those tax, breaks expire, nearly all.
[00:14:33] Is it your view that the future Trump administration, Their plan would simply be to allow those to continue indefinitely, right?
[00:14:42] Brian M. Riedl: The position of the GOP is to extend the tax cuts for 100%. The position of the Democrats is to extend them for 98 percent of taxpayers, or whatever the 400,000 cutoff.
[00:14:52] It might be about 96 percent of taxpayers. And then also add additional tax cuts, such as extending the child credit. So both parties probably want to spend about three trillion dollars to extend the tax cuts. My criticism of President Biden is that he didn’t put the cost in his budget.
[00:15:09] That he’s claiming deficit reduction by just leaving out a policy that he and the Republicans both agree on and is going to happen. if you’re going to extend the tax cuts, fine, but put the numbers in your budget.
[00:15:24] Joe Selvaggi: Yeah, indeed. And of course, I was going to talk about compare and contrast, but it seems like almost, ironically, they’re very similar plans.
[00:15:32] Ironically, the Democrats want to cut taxes even more for, let’s say, lower-income people and want to, let’s say, increase taxes on those making more than 400, 000. You and I in an earlier podcast have established that’s a very small number of people, right? that’s, you mentioned one or two percent of people making income in that range, so raising taxes on them is going to be a drop in the bucket.
[00:15:54] Isn’t that fair?
[00:15:55] Brian M. Riedl: Yeah, there’s a certain myth. That’s widespread, unfortunately, that if we just tax the rich more, we can eliminate the budget deficits and even pay for all these new, wonderful benefits. The numbers just don’t work. I think, what President Biden proposes, the 5 trillion in new taxes on the rich over the next 10 years, really pushes the boundaries of what you can actually raise.
[00:16:19] In fact, I would argue that he would actually raise far less than 500 trillion or 5 trillion when you account for the economic losses. broadly speaking, I wrote a report last fall called The Limits of Taxing the Rich that showed that even if you set every tax for corporations and the richest 2 percent at the revenue-maximizing rates, and you got rid of loopholes, and you went after tax evasion, you could probably raise at most 1 2 percent of GDP in new revenues.
[00:16:53] Now, the deficit is 7.5 percent of GDP. And I’m saying, if you just said, we’re gonna set every tax rate to collect the most money, without regard to the economy, without regard to anything else, you could get 1 2 percent of GDP. I’m not saying don’t tax the rich. I think everything has to be on the table.
[00:17:12] Everybody’s going to have to take a cut. But there’s a certain myth out there that as long as you just tax the rich, we can shield every family earning under 400,000. And we also don’t have to cut spending. And it’s just mathematically not true.
[00:17:30] Joe Selvaggi: Yes, I remember reading that paper and say, all the revenue, all the income of those making more than 400,000 a year amounts to 2 trillion a year, which is a tax rate of 100% if you took it all, and that still doesn’t solve anything.
[00:17:42] Brian M. Riedl: Oh, and additionally, we talk so much about billionaires. If you seized every penny from every billionaire in America, and I mean their house, their car, their yacht. Every investment they have, you shuttered every business they have. You took their kids’ toys. You took every penny of net worth from every billionaire in America and sold it to fund the government.
[00:18:08] You could fund the federal government one time for nine months. And then it’s gone. That’s it. So again, the widespread myth that if we just tax billionaires, we can have anything we want. It’s just flat-out false, and if you look at places like Europe, they tax the wealthy at pretty much similar rates as us.
[00:18:28] Their extra revenue comes from taxing the middle class. Indeed, okay.
[00:18:33] Joe Selvaggi: So, I want to circle back to that a little bit later, but I want to, I don’t want to bury the lead here. All of our conversations between Biden and Trump, or budgets and deficits, we’re really talking about what we would, and Discretionary spending. That is every year, there are, I guess 12 appropriations, bills that are approved and, one by one, either, yes or no, a little more, a little less, but this is, these are choices.
[00:18:59] Annually made by the Congress and approved by the President, that address a portion of the budget is a choice, discretionary, so, so the name implies. What percentage of the budget is discretionary, that is, what we’re talking about here? And what is the other thing, the non-discretionary, that we’re not talking about?
[00:19:17] So, let’s take that apart for our listeners.
[00:19:20] Brian M. Riedl: Yeah, the discretionary budget has collapsed. back in the early ’60s, about 70 percent of the budget was the discretionary spending that actually went through the budget every year. now it’s closer to about 25 or 30 percent of the budget is discretionary.
[00:19:36] What that means, it’s not that we’ve necessarily cut discretionary spending to an extreme level, as much as the mandatory spending has crowded it out and the concern that people who focus on deficits have is that the discretionary spending is the only part of the budget that Congress and the President have, can really control easily every year.
[00:20:02] Every year, those 12 appropriation bills have to be drafted and passed or those programs mostly shut down. The rest of the budget, the other two-thirds of the budget, is on autopilot. This is Social Security, Medicare, Medicaid, most anti-poverty programs, and farm subsidies. These programs, Congress just creates a law and says, everyone who’s eligible gets it.
[00:20:31] And it spends what it spends. We’re not, it’s not going to go through the budget every year. We’re just going to put it on autopilot for many years and it costs what it costs. Those are uncontrollable. That means unless Congress comes in and with the president changes the law, they’re on autopilot and that’s the part that’s squeezing out discretionary spending.
[00:20:52] It means that policymakers are losing control of the budget. They’re losing control of spending because more and more of it’s on autopilot.
[00:21:01] Joe Selvaggi: So if I do the math, quickly, you, we’ve got $7 trillion of spending and 70% of it is non-discretionary. So $5 trillion is spent without the intervention of Congress, essentially, as you say, on autopilot. Is this right?
[00:21:15] Brian M. Riedl: Yes. Yeah. Discretionary spending is about $1.8 trillion per year out of the $7 trillion. There’s interest. Interest is usually considered part of the mandatory. Some people list interest as a third category. but yeah, of about 7 trillion, 5. 2 trillion of it is just simply on autopilot.
[00:21:34] Granted, that can be controlled, but the President or Congress can’t unilaterally change it. They can’t block a bill. if the President wants to fix entitlement programs, he can’t, unless Congress agrees to pass a bill. Discretionary spending, the president has more control because that actually has to be signed every year.
[00:21:55] Joe Selvaggi: So these are buckets, you mentioned social security, big one, Medicare, Medicaid, big one and, we can, we’ve talked in the past about the silver tsunami, a lot of people retiring talking about 10,000 people a day going into medicare, social security, these kinds of things, as you say, those are growing, and in a sense, eclipsing these other discretionary, spending items.
[00:22:14] When a president presents a budget, or a presidential opponent presents a budget, So how are you going to reduce the deficit? It seems to me this is like the, 8,000-pound gorilla, or 5 trillion dollar, gorilla, or elephant in the room. How is it that nobody seems to be talking about what really is affecting the budget?
[00:22:31] It’s, I know there’s a boogeyman on either side, right? The boogeyman on the right might be, welfare recipients, and the boogeyman on the left might be, the Department of Defense, or, who knows? what do you think? Why isn’t anyone talking about the nondiscretionary, because you say it’s legislatively mandated, but it could be legislatively fixed, is that right?
[00:22:50] Brian M. Riedl: Yeah, in fact, it needs to be legislatively fixed and pared back, because again, it’s totally on autopilot. Like I said, you could, the not, the discretionary stuff, our programs like Defense, Veterans, Education, Health Research, Highways, that stuff goes through the budget, but the stuff that’s on autopilot is sometimes some of the most controversial programs in the government.
[00:23:13] Social Security, Medicare, Medicaid, much of the safety net. Lawmakers don’t want to reform those because it’s controversial. And so if you talk about social security and Medicare, you’re going to have a voter uprising. In fact, a year ago, if you remember, President Biden and congressional Republicans were tripping over themselves to shout that I would never change Social Security or Medicare.
[00:23:40] Well, the problem is the costs of these programs are rising 7 percent per year. Every year, an automatic autopilot, that’s just not affordable. The economy can’t grow fast enough. Tax revenues can’t grow fast enough to keep up with these programs growing 7 percent per year. just to put a number on it, or, because this is what I do, I’m an economist.
[00:24:04] Social Security and Medicare are not fully funded by payroll taxes and premiums. They’re not enough. So every year, these programs run a shortfall that has to be paid for out of general revenues. Last year, the Treasury had to transfer 500 billion into Social Security and Medicare in order to be able to pay all benefits.
[00:24:26] A decade from now, they’re going to have to transfer more than 2 trillion a year into Social Security and Medicare to pay all benefits. So again, just a decade from now, Social Security and Medicare will be running a 2 trillion annual shortfall on autopilot. That’s why the deficit is rising, that and the interest costs, but it’s too controversial for lawmakers to address.
[00:24:51] Joe Selvaggi: I’m listening to you and I’m imagining a critic saying, the problem is, it’s not that the revenues, the cost is going up. But, we keep talking about tax cuts, that seem to make headlines. We’ve cut taxes so much that we’ve impoverished these very useful, necessary programs. Taking a step back.
[00:25:08] On a historical basis, are Americans paying less in taxes, because that’s really all we hear about is tax cuts, taxes for the rich and all. Are we paying less in taxes? And also, who’s paying our taxes? Which Americans are paying the taxes? Is it a shared burden? What’s going on here?
[00:25:26] Brian M. Riedl: The tax code right now raises about 17.
[00:25:30] 5 percent of GDP in tax revenues. That roughly matches the post-1960 average. total tax revenues are about the same as they’ve always been, even with tax cuts. Because part of the thing is, over time, the tax code has provisions that automatically, and gradually raise taxes. And so the effect of the tax cuts we’ve had in 2001 and 2017 was to basically cancel tax hikes.
[00:25:57] And keep revenues at about 17. 5 percent of GDP. So the tax burden is about normal compared to what it’s always been. The revenue collection is about normal. It’s about 17 percent of GDP. Now, certainly, if we hadn’t cut taxes in 2001 or 2017, revenues would have grown on their own closer to 19 percent of GDP, which would be well above the long-term average of 17.
[00:26:26] So there was a scenario by which we allowed taxes to rise to 19 percent of GDP without the tax cuts. Perhaps that would have been the better policy. Moving forward, however, if we extend the tax cuts, Revenues gradually rise to about 19 percent of GDP over 30 years. If we don’t extend the tax cuts I’m sorry, if we extend the tax cuts, they rise to 18.
[00:26:51] If we don’t extend the tax cuts, they rise to 19. So we’ll be between 18 and 19. The challenge is, spending is going to 30 percent of GDP over 30 years. 30. Whether we have revenues at the normal 17, or where they’re headed towards 18, or if we let the tax cuts expire 19, you can’t keep up with spending going to 30 percent of GDP.
[00:27:17] And so I think there’s always a case for putting taxes on the table because you can’t get there on spending cuts alone. But the idea that we could have any sort of tax code that could collect anywhere close to 25 or 30 percent of GDP, I don’t think Americans would like what that tax code looks like.
[00:27:37] So really, it’s ultimately a spending-driven problem. Spending is the moving variable that’s driving deficits, but that doesn’t mean you can’t have taxes be part of the solution, without necessarily doing anything that would really scare Americans.
[00:27:54] Joe Selvaggi: So there are two ways we could go with this. We could talk about how do we curb, the spending growth, but I do want to, I’m sure there’s some listeners out there saying, oh, well, so what?
[00:28:00] Our average has been 18, 17, 18 percent, revenue. Why can’t, we want more government services? Why shouldn’t we as Americans all pay a little bit more? I recently read a piece, of course, it may have been something you wrote, that at the current moment, the top 10 percent of earners, or the top 50 percent pay all, government services.
[00:28:18] Federal, income tax, meaning the bottom 50%, Army, Navy, Air Force, Marine, essentially the average American, pays effectively, zero to the federal government, given that whatever they pay and they get out, at least as much. and yet, everybody thinks, someone else is getting away with murder, despite the fact they’re getting a lot for nothing.
[00:28:34] Who would be paying the additional tax if we go from 18, 19, 25, 28, if our tax caught up with our spending, who’s going to bear that burden?
[00:28:43] Brian M. Riedl: Well again, the deficit over 30 years is going to be about, 10 to 14 percent of GDP, depending on what assumptions you make. You can raise taxes on the rich by 1 or 2 percent of GDP before they basically max out.
[00:29:00] You hit the revenue-maximizing wall. And when people may have trouble believing that, let me reiterate, we already tax the rich at about the same levels as Europe. In fact, our highest-income corporate capital gains and estate taxes are actually slightly higher than the European average. Which means you can’t go that much higher on taxing the rich.
[00:29:22] You can get about 1 or 2 percent. The rest is gonna have to come from the middle class. And the reason that the United States has the most progressive tax code in the OECD is because we tax the rich at similar rates. But as you mentioned, We don’t tax the middle class or poor much at all. The median-earning family in America pays an effective income tax rate of about two percent and now their payroll taxes contribute more, but for the rest of the government, outside of where your payroll taxes are going, Social Security and Medicare, they’re paying a two percent income tax. Ultimately, the bulk of the revenues are going to have to come from the middle class. They’re going to, we’re basically going to have to do it the way Europe does it.
[00:30:06] This is big payroll tax hikes and a VAT. A value-added tax is like a national sales tax that every country in the OECD has, except for us. This gets in the way of the politics, though, because both Trump and Biden are adamant that no one under 400, 000 should see a penny in new taxes. But you can’t get there on just taxing the rich, because the rich already pay the overwhelming majority of the taxes, and there’s only so much higher you can go.
[00:30:39] Joe Selvaggi: Well, again, I’m listening to the inner voice in my head saying someone on the, let’s say more, left of center might say, well, you’ve forgotten one great source of revenue, which is raising corporate taxes. Now, I’ll editorialize and say corporate tax is essentially a myth in that. When you tax a corporation, there’s no guy named corporation.
[00:30:57] All those taxes get passed on to, of course, to shareholders, of course, which are your 401k, right? To employees, there’s less money to give them, and the consumers, the prices go up. I say, if you can’t imagine how it works at IBM, imagine if you tax a cab company and said, okay, you should pay your fair share cab company owner.
[00:31:14] The cab driver is not going to work for last. He, he’s going to struggle. Your fare is going to go up, or the cap company just closed down because they can’t make a profit. So, there is no corporate tax that could just magically come to the rescue.
[00:31:25] Brian M. Riedl: What would you say to that? Yeah, and in fact, the 1 2 percent from the rich I mentioned, includes corporate taxes.
[00:31:32] That is both, that is individual, and capital gains, and corporate, and estate taxes. And the numbers just aren’t that big. even if we restored the 35 percent corporate tax rate that we had up to 2017, which, if you count state taxes would be about a 40 percent corporate tax rate. This would, first off, not only be the highest corporate tax rate in the world, it would be nearly double the average of our trading partners in Europe.
[00:32:04] Double. We would have double the corporate tax rate. But even then, you would raise about 0. 4 percent of GDP. from having corporate tax rates practically double our trading partners. And there’s a reason they cut the corporate tax rate. There’s a reason even Democrats cut the corporate tax rate, which is the same reason Europe has cut its corporate tax rates.
[00:32:27] It’s not because Germany and France love big business. It’s because when the corporate tax rate becomes a global outlier, businesses leave. Money leaves, and companies move abroad. You can’t force the companies to stay in America and the American multinational companies who are competing against all these countries can’t do so.
[00:32:52] If the American company is paying a 40 percent rate and we’re competing against a British company paying a 22 percent rate, we’re going to lose and we’re going to lose jobs and we’re going to lose competitiveness. Furthermore, as you mentioned. The corporate tax rate gets dumped on lower wages, higher prices, and lower stock values in 401ks.
[00:33:16] So, it’s okay to put corporate taxes on the table. In fact, in my budget, I have proposed some changes to corporate tax policy. But you’re not going to close a massive deficit just on corporate taxes. The math doesn’t work, and the economics get ugly.
[00:33:33] Joe Selvaggi: Yeah, well, okay, so we’ve, I think we’ve put to rest all the wild theories of how we’re going to fix this, and when we talk about these growing programs, let’s say Medicare or, Social Security, folks I think in their mind imagine this is all money that they’ve paid out through their lives, and they’re just getting back their money, and that any talk of taking any or reducing any benefit is essentially breaking a promise.
[00:33:59] Share with our listeners, is that, is there any validity to that claim, and what would you do in a sense to tweak or modify such that these programs are not gotten rid of, but perhaps made to grow more slowly or not at all?
[00:34:15] Brian M. Riedl: Yeah, the two of the big myths about Social Security and Medicare are first, that seniors are very poor.
[00:34:21] Of course there’s senior poverty, but on average, seniors are the highest earning, wealthiest group in America. Since 1980, senior income has grown four times as fast as worker income. So seniors on average are doing pretty well, which is why it’s even more frustrating that when you get to the second myth, seniors are not on average just getting back what they paid in.
[00:34:48] and social, and in social security, they get about 15 to 20 percent more than they pay in. Even when you adjust for present value, so when you say, well, what about inflation? What about interest rates? Even when you fully adjust in the present value, dollars are coming out about 15 or 20 percent ahead.
[00:35:06] On Medicare, it’s even more drastic. The typical senior in Medicare will get back triple what they pay into the system, even adjusted for present value. So if you put those together, the typical senior couple retiring today. Middle-earning, senior couple, retiring today, will have paid 1 million into Social Security and Medicare over their lifetime, in net present value, and will get about 1.
[00:35:37] 4 trillion in benefits. All are adjusted into net present value. You said trillion. I’m sorry, Bill. I’m used to trillions. Not millions. They will pay one million in, and they’ll get 1. 4 million back in benefits. And I’m so used to trillions as a budget geek. But still, they’re getting 400, 000 more back than they paid in.
[00:35:59] Lower income and single earners. Get an even higher return. And the problem is you multiply that by 74 million boomers and you see why these programs are going to run 128 trillion shortfall over the next three decades. So,
[00:36:17] Joe Selvaggi: we’re getting close to the end of our time together. I do appreciate your time.
[00:36:21] So, my, my head is spinning with these numbers. As you say, Like it or not, the average family is getting more from the government than they put in, I guess that’s good news for them. And you can see why they would not be eager to see any changes to this, I dare say, a sweet deal.
[00:36:36] So, you don’t see the political will, things aren’t bad enough yet to do anything about it, hence we see a president with A budget proposal that is, really fantasy, it’s either number made up or not addressing the crux of the core of the problem. When will we start to realize that the end is near?
[00:36:54] Which is to say, when will this massive yawning debt start to impose itself on the average man on the street? Will he suddenly wake up and say, 30 trillion was fine, but 40 trillion is not, no good. Or will things like, I’m thinking of course, all this money being spent.
[00:37:09] It has the effect of inflation, of course. The more money you pump in, it’s like steroids or something. we’re all running around after the same goods, with more money. That’s inflation. But also interest rates. I think, they’re borrowing, we’re borrowing, everybody’s borrowing. And the cost of borrowing and other people’s willingness to lend, they’re gonna have to command higher and higher rates.
[00:37:27] This inflation that we see is going to be persistent and interest rates, I think, are bound to be high. Would you agree with that as being the first wave of, the influence of these large deficits?
[00:37:38] Brian M. Riedl: Right. I generally agree with that. I think I would love for us to reform Social Security and Medicare before we have to.
[00:37:45] The problem is, once you feel the pain, it’s too late to do the relatively pain-free reforms. The danger is, right now, we’re at 100 percent of GDP in debt. It’s, we’ve only had, the debt has only been 100 percent of GDP before, during the peak of World War II. It’s well above Europe. And it’s projected to rise anywhere from 170 to 340 percent of GDP over the next 30 years, depending on whether we extend the tax cuts, whether we extend expiring spending programs, and whether interest rates rise.
[00:38:19] Most economists agree that at those points, the financial markets simply can’t lend us enough money. To run deficits that big, again, Social Security and Medicare are going to borrow 128 trillion over 30 years. The question is, can the financial markets even lend us that much money without at least pushing up interest rates?
[00:38:43] And at some point, the financial markets are going to cry uncle and say, we don’t have the resources to lend that much money at low-interest rates. So when interest rates rise, that just makes the debt more expensive because now we’re paying higher interest on our bonds, then you have to borrow more and you get this what’s called a debt cycle.
[00:39:03] When something like that happens is tough to predict. the economists at the University of Pennsylvania at the Wharton School believe 20 years before there is a substantial financial Panic. It could be five years, it could be 20 years, it could be 30 years. It’s really hard to predict because it’s as much a question of market psychology as it is of economic fundamentals.
[00:39:31] At what point do the markets panic that we can’t handle this much debt? But what I can say, without predicting when it’s going to happen, is it has to happen at some point because If the debt goes to two to three hundred percent of GDP, something has to give. The financial markets can’t handle that. So I think what we’re looking at is the financial markets panicking, essentially no longer offering affordable lending to the federal government.
[00:40:02] And that forcing the federal government to close its deficits very quickly by either dramatically raising taxes and or dramatically cutting spending. That’s what I’m trying to avoid having to do that in a panic. A few years down the road. And even, again, I’m listening
[00:40:19] Joe Selvaggi: to what you’re saying, but even now, I was reading that the, the service of the debt that we have now, that 34 trillion, in relatively low, interest rates, the government enjoys, relatively low-interest rates, is now north of 700 billion, which is larger than what we spend on defense.
[00:40:35] So, it’s crowding out all the other services. if our listeners from the left of center think the government is a wonderful thing and ought to be spending more, all those good things and programs it wants to spend on can’t be, grown if this debt is this sort of the, eventually going to occupy half of our, our expenses.
[00:40:56] So, so, if, even if you believe in all the good things government can do, debt is a weight around your neck, while you’re trying to swim. Is that fair?
[00:41:04] Brian M. Riedl: Exactly. The interest on the debt has gone from 350 billion to 663 billion in two years. Over the next decade, interest is going to rise to nearly 2 trillion.
[00:41:18] What that means is a decade from now, under a current policy baseline, where we keep current policies, a quarter of your federal taxes will just go to paying interest on the debt. That means all the federal taxes you pay until April 1st will just pay interest on the debt. it grows even further. Over 30 years, interest on the debt is projected to grow to between half and three-quarters of your federal taxes.
[00:41:46] That’s federal taxes you’re paying that’s not going to fund a social security benefit, a veteran’s benefit, build a highway, feed a poor person. You’re going to have half or two-thirds of your taxes just paying interest. You mentioned interest in passing defense this year. It’s going to pass Medicare next year.
[00:42:05] By next year, interest is going to be the second biggest item in the budget. And by 2042, it passes social security to become the single biggest item in the federal budget. What a waste of our tax dollars. Yeah.
[00:42:20] Joe Selvaggi: Yeah. And for, again, I’m thinking about action items and how to tie this whole conversation up with the flow.
[00:42:24] I don’t know what our listeners will take away. I, we’re certainly not piling on Biden or Trump. They’re both, they both seem to be, equally delusional. if our listeners are looking for some action item, is it a party they should follow? Is it a, or are we looking for leaders and representatives who can speak truth to us and say, okay, look, it’s hard to hear, but when I go to Washington, I’m going to at least do my part to address these larger issues and hopefully make your future, your children’s future, grandchildren’s future, a little safer because I’m addressing what really matters?
[00:42:59] Is that fair? It’s not a party issue. It’s more like, let’s find some, fiscally responsible people to go to Washington. Is that fair?
[00:43:06] Brian M. Riedl: Absolutely. I think if you’re looking for a fiscally responsible party, you’re going to be looking for a long time. both parties have been extraordinarily fiscally irresponsible.
[00:43:15] And the reality of it is, the three main levers to fix the deficit, you’re going to have to fix social security, fix Medicare, and address middle-class taxes. Everything else people talk about can be a part of the solution, but it’s not going to get you close. And what I mean is taxing the rich, cutting defense, cutting foreign aid, defunding Ukraine, immigration, reform.
[00:43:42] Those are all fine to put on the table. They’re not going to get you anywhere close. The three main levers are social security, medicare, and middle-class taxes, and you can decide individually how much of each lever you want to pull. But when you’re looking for that, you’re looking for truth-tellers in Washington who will admit that, and the problem right now is both parties have said No social security reform, no medicare reform, no middle-class taxes.
[00:44:10] So what you need to do is look for truth-tellers in Washington who will at least be honest and say, Look, everything’s going to have to be on the table, including that. We’re not going to get there by taxing the rich or defunding Ukraine by itself. If you can find lawmakers who can do that, those are the ones you want to champion.
[00:44:29] But you also have to remember, Any solution is going to have to be bipartisan. This stuff is too toxic and too controversial for one party to do by itself in a partisan bill. So, if you’re just hoping to get one party to understand the issue, that’s not enough. You really need to get both sides to get this so that they can hold hands together on a grand deal with everything on the table where everybody takes a hit.
[00:44:57] Joe Selvaggi: Yeah, hold hands and jump, right? that’s right. So I think we’ve run out of time. I wish we had a more positive note to end on. I think our listeners are maybe pretty discouraged. They want maybe a simple solution, something they could put on a bumper sticker. We didn’t offer one today, but at least I think they’re a little more informed about the scale and the scope of the problem.
[00:45:17] So thank you very much for your insight today, Brian. It’s really been a useful resource for our listeners.
[00:45:22] Brian M. Riedl: Thanks so much, Joe. It’s been fun.
[00:45:26] Joe Selvaggi: This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute. It would be easier for you and better for us if you subscribe to Hubwonk on your iTunes Podcatcher.
[00:45:37] It would make it easier for others to find Hubwonk if you offered a 5-star rating or a favorable review. We’re always grateful if you share Hubwonk with friends. If you have ideas,comments or suggestions for me about future episode topics, please You’re welcome to email me at hubwonk@pioneerinstitute.org. Please join me next week for a new episode of Hubwonk.
Joe Selvaggi talks with Manhattan Institute Senior Fellow Brian Riedl about how the contours of President Biden’s recently released budget proposal reveal a persistent, bipartisan reluctance to address profound structural deficits.
Guest:
Sunshine Week 2024
/in Better Government, Better Government, Featured, Pioneer Research, Transparency /by Editorial StaffPartly Sunny with a Chance of Transparency
As Pioneer Institute observes Sunshine Week , March 10-16, it is worth remembering the uncommon courage it took for our founders to so publicly and transparently declare their political beliefs and loyalties at a time when Great Britain ruled the waves and the American Colonies. The Founders were indeed risking it all — fortune, honor, and indeed their very lives — to establish a system of self-governance that serves as a beacon of hope to the world.
Unfortunately, our early twenty-first-century America — and Massachusetts — is marked by only partial sunshine. Politicians long entrenched in the halls of power would much prefer to eclipse the public’s right to information.
Massachusetts deserves better. Only by fully honoring the letter and spirit of the laws can we truly claim that moral high ground to which our brave forefathers first lay claim. We call upon the independent-minded people of Massachusetts to join with us in a bipartisan push for greater government transparency.
Calls for Reform in State Government:
The Massachusetts Legislature should be subject to an audit by the State Auditor
As has been the practice for decades, the state legislature bypasses the State Auditor and hires its own firm to perform a review of its books and records. That means the public has limited insight into legislative operations because the audit report itself can be shielded from the public records law, from which the legislature has exempted itself. Pioneer supports State Auditor Diana DiZoglio’s effort to audit the legislature.
Eliminate the governor’s office executive order privilege
Since the Massachusetts Supreme Judicial Court’s 1997 ruling in Lambert v. Executive Director of the Judicial Nominating Council, state officers in Massachusetts have fulfilled public records requests “at their discretion,” reinforcing what is — for the average citizen — one of the nation’s least transparent and most onerous systems for obtaining public records. Unfortunately, Gov. Maura Healey has retreated from vows made early in her administration to be more transparent. Pioneer once again calls upon the governor to live up to her promises and forgo her office’s executive order privilege. There is no better time than Sunshine Week to do exactly that.
The Massachusetts State Legislature must be subject to the state’s public records and open meeting laws
The Massachusetts Legislature continues to exempt itself from the definition of “public body” as it pertains to transparency laws. Pioneer believes that the legislature’s exemptions from public records and open meeting laws violate the state Constitution. Article V of our state’s Declaration of Rights requires that the branches of government “at all times” be accountable to the people. Restricting the public’s access to legislative meetings and records fundamentally undermines that basic right.
Lawmakers should make access to Statements of Financial Interests anonymous, easier, and available online
Among the 49 states that require Statements of Financial Interests (SFI’s), Massachusetts ranks last in making such information available to the public. SFIs are critical for boosting public confidence that legislators and policymakers are acting in the public interest rather than their own. Massachusetts requires that those seeking access to SFIs provide a photo ID and it reports their identity to the official whose SFI is being requested. Such practices amount to intimidation, serving only to keep financial information hidden from public view. It’s up to the legislature to change the laws on SFI’s.
New Transparency Websites:
Labor Force: Pioneer released LaborAnalytics, a web tool that tracks workforce and unemployment trends in Massachusetts and the nation. With $2.5 billion in available funding in Massachusetts, this tool is a must for policy makers.
340B Program Transparency: Pioneer Life Sciences Initiative (PSLI), led by Dr. Bill Smith has focused attention on abuse in the federal 340B contract pharmacy program. Pioneer has created a website to keep the public informed and quantify the volume and geographic distribution of contract pharmacies for each 340B-eligible entity throughout the U.S.
Hospital Pricing: Pioneer’s Barbara Anthony and Gauri Binoy created a transparency website, the Massachusetts Hospital Relative Price Tracker, that highlights disparities in relative commercial prices among hospitals, with some major institutions charging 25 to 100 percent higher prices compared to the average of all hospitals, despite efforts to control healthcare cost growth in the state.
PioneerLabs: 50 States, 50 Laboratories
U.S. Supreme Court Justice Louis Brandeis was the first to popularize the phrase that states “are the laboratories of democracy.” Though each state has its own priorities, as expressed through their legislatures, they all share certain overarching goals:
States that excel in meeting these overarching goals attract and retain residents and investments. They are the foundation for social cohesion and participation in the economy, politics, and a rich cultural life. We are creating one website that will provide transparency on how states are competing in these core service areas. Our audience? Policymakers, the media, advocates and activists, interested citizens, you.
Our Legacy Transparency Sites:
Access our MassWatch transparency tools for a wealth of cutting-edge data organized to enhance understanding of our state economy. And for a link to a wealth of state data resources you can use to learn more about the business of state government, check out our page linking to some of the most useful parts of the mass.gov website.