Fiscal Policy in the News
This week Fix the Debt supporters from around the country visited Washington, DC to ask their representatives to work together and address the national debt. Members of Congress got the message that their constituents want them to act responsibly to achieve a comprehensive, bipartisan solution.
After weeks of deliberation and two and a half weeks after a key deadline passed, we finally have a deal on student loans. A bipartisan group of Senators and the White House hashed out a deal to reform student loan interest rates, well after the 3.4 percent rate on subsidized Stafford loans had reverted to 6.8 percent on July 1.
Former CBO director and CRFB board member Alice Rivlin was interviewed by the Fiscal Times Sunday on the state of our budget and economy. Rivlin emphasized that while short-term improvements have been made in terms of the current fiscal outlook and economic recovery, there are still numerous long-term problems that remain.
Among developed countries the US is unique in taxes in a number of different ways. One claim to fame is the fact that the U.S. now has the highest marginal corporate tax rate. The current marginal rate in the U.S. remains at 35 percent while the average marginal rate of the OECD countries, excluding the U.S., is a full 12 percentage points lower at 23 percent. At the same time, the revenue collected by the corporate tax is low by international standards due to the number of corporate tax provisions which make the effective rate not nearly as high.
When the financial crisis began at the end of 2007, it soon became clear that the government would need to run higher deficits in response. Tax revenue fell, spending on "automatic stabilizers" rose, and policymakers enacted new spending to stimulate the economy. At that time, the debt level was lower and in line with historical averages, giving lawmakers the room to borrow what they needed to adequately respond.
This morning, Federal Reserve Chairman Ben Bernanke testified before the Joint Economic Committee regarding the current economic climate. He noted that the economy has begun to show signs of life, attributing the accelerating pace of GDP growth to gradual improvements in credit conditions and the housing market. He also argued that the Fed should continue its quantitative easing at its current pace until the labor market improves sufficiently.
Bittersweet – The madness is here. The NCAA tournament field has been reduced to 16 teams, and after this weekend there will be only four remaining. While the budget field has been reduced to two, don’t expect a clean conclusion like the one we will see in Atlanta. In Washington, the brackets are broken before the action begins (for a really scary bracket, check this out).
Madness Returns – It’s that time of year again. Predictions are made and office pools are formed. Yes, budget wonks are pitting budget against budget to see which will prevail. And we hear there’s a basketball thing going on. Congress is trying to wrap up this week a spending plan for the rest of this year and a budget for next year ahead of a two-week Easter recess. Meanwhile, spring has begun and debate over how to address the national debt continues. Will a debt deal defy prognosticators and make a Cinderella run?
Despite a growing chorus of debt deniers, most economics continue to agree that putting in place a long-term plan to responsibly address our growing debt would help promote long-term economic growth and stability.