Penn Wharton Budget Model Faculty Director Kent Smeters joins ‘Varney & Company’ to discuss how the national debt could be reduced if his research-based analysis was implemented.
A new analysis from the nonpartisan Penn Wharton Budget Model (PWBM) outlines such policies reduce federal debt Stimulating long-term economic growth as the incoming Trump administration faces policy debates over taxes, spending and debt next year.
The federal government faces several key policy deadlines in 2025, starting with the debt ceiling suspension set to expire in January, which would require Congress and President-elect Trump to raise the debt ceiling to avoid default. Limits on discretionary budget spending are set to expire when fiscal year 2025 ends in September, while parts of the Trump-era tax cuts are set to expire at the end of next year.
Following the confluence of those deadlines, policymakers will face a debate over how to address massive national debt and spending growth as well as reset tax policies. Policy illustration of PWBM The focus is on four areas – simplifying the tax code, reducing tax-induced distortions, implementing taxes to remove negative externalities, and strengthening the long-term solvency of Social Security and Medicare.
“A common misconception is that serious debt reduction will come at a cost economic development Or social safety net. We show that this is wrong,” PWBM analysts wrote. “Reforms here lead to sustained debt reduction, growing the economy, reducing carbon emissions, and almost completely reducing the existing gap in working-age health care coverage. and poverty among retirees is reduced.”
US national debt hits a new record: $36 trillion
Analysis from the Penn Wharton budget model suggests that the national debt can be curbed while stimulating economic growth. (iStock/iStock)
tax simplification Those outlined in the PWBM analysis include taxing capital gains and dividends at ordinary income tax rates, as well as taxing capital gains on death without a phased-in basis starting in 2025.
It would expand the employment tax base to cover all pass-through income, disallow all itemized deductions except charitable deductions, remove the income exclusion of employer-sponsored health insurance premiums from taxable income and mandatory health savings. Will offer accounts that can cover up to $3,000. Out-of-pocket health care expenses per year.
The PWBM delineation would replace the standard deduction and personal exemptions with partially refundable tax credits and reduce the top income tax rate from 37% to 28%, with no marginal rate above that.
This also includes $50 per ton carbon tax The phaseout on coal, oil and natural gas products, starting in 2025, is estimated to reduce greenhouse gas emissions by 7% in the short term and by about 16% by 2054.
The PWBM analysis would simplify the tax code by reducing the top marginal rate and implementing a carbon tax. (iStock/iStock)
Social Security crisis: CRFB says beneficiaries face 21% cut in benefits without reforms
PWBM’s analysis shows aging US population putting pressure on finances social Security and Medicare, because retirees are living longer and relatively younger working-age families are supporting more retirees. This shows that the US cannot rely solely on economic growth to stabilize the finances of those programs, so policy reforms are needed to achieve this.
“The United States cannot grow its way out of the shortfall facing these two major mandatory spending programs: Spending in both programs is either explicitly or implicitly indexed to growth. Both programs are materially dependent on the accumulation of savings. and reduce incentives to work, which reduces growth,” PWBM said.
Policy changes will increase Full-Benefit Social Security Retirement Age From 67 to 70, a change that will be phased in between 2037 and 2056 – so it will not affect individuals over 50 in 2025. New minimum and maximum benefits will also be implemented in 2037.
Social Security’s full retirement age for individuals under age 50 will be raised on a phased basis in 2025. (Kevin Dietsch/Getty Images/Getty Images)
medicare eligibility age Under the example the rate would be increased from 65 to 67, phasing out the change completely by 2036. It would also turn Medicare into a premium assistance system in which beneficiaries would choose from a variety of insurance plans, with the federal government sharing the cost of premiums.
Without immigration the US population is projected to decline and current immigration levels are insufficient to address the narrowing gap between workers and retirees, PWBM’s analysis involves doubling the numbers. legal immigrant per year and would require all immigrants to obtain unsubsidized health insurance.
Overall, PWBM found that the policies included in the analysis would increase GDP by 21% over 30 years compared to current law and increase wages by about 7% over that period compared to current law.
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Personal health insurance premium Compared to current law, there would be a 27% decline over 30 years, due to the requirement that immigrants must obtain private health insurance to reduce moral hazard, and to expand the insurance pool with younger, healthier individuals.
Federal debt held by the public, which currently accounts for 99% of US GDP and is projected to grow to 166% of GDP by 2054, would be 37.8% lower than the projection in 2054 under the PWBM analysis.
