Fiscal Policy

At the beginning of this year there were some indications that the era of "deficits don't matter" rhetoric was being replaced by a renewed concern about deficits, at least rhetorically. Unfortunately, the actions since then have shown no indication that policymakers have the stomach to match that rhetoric with actions.

In his recently released biography, Richard Parker tells the story of John Kenneth Galbraith, one of the world's most famous living economists. Parker captures Galbraith's long career in economics and politics as well as the evolution of his economic thought.

The purpose of this annual report is to summarize and take stock of the current state of federal policy through an asset-building lens, especially as it affects the asset base of the poor.

In his Second Inaugural Address, President Bush reaffirmed his commitment to promoting an “Ownership Society” and unambiguously connected asset building policy to the most cherished ideals of the nation. He proclaimed:

The world today is very different than when Social Security was created. A number of issues should be considered when thinking about how to reform Social Security, including:

Should we update benefits to reflect changes in family status and economic well-being of the elderly?

Can our children really afford to finance our spending such a large portion of our life in retirement?

Should Social Security reform be used to help strengthen the economy through increased work and saving?

The President’s budget projects a gradually reduced deficit over the next five years, from the $412 billion deficit in fiscal year 2004 (3.6% of GDP) to $207 billion in 2010 (1.3% of GDP). This decline mirrors the decline in the deficit projected under current law as the near-term budget outlook improves modestly. In fact, the President’s policies would actually increase the deficit over the five-year window. Furthermore, the budget relies on unrealistic assumptions and gimmicks to limit the size of the proposed deficit.

The corporate income tax has always had enemies. Introduced in 1909 as an effort to close the country's worst budget gap since the Civil War, economists and capitalists almost immediately began to argue that it was inefficient and slowed down business. More recently, Presidents Reagan and Carter, as well as conservative economist Milton Friedman and liberal economist Lester Thurow, have all recommended that the country scrap it.

Summary of Remarks

The second panel of the Real State of the Union, "Rethinking Domestic Policy" was moderated by Morton Mondracke, executive editor of Roll Call. The discussion focused on fundamental problems at the core of American domestic policy, including asset management, health care, and improving standards for all Americans.

Here's a factual statement and two arguments about Social Security.

The factual statement is that under any retirement system, the amount of America's national wealth devoted to the elderly is going to increase, for the simple reason that the elderly percentage of the population is going to increase. Today, about 13 percent of the population is over 65; by 2030, that percentage is expected to rise to 20 percent. After that, the percentage will level off -- unless, of course, a breakthrough in geriatric medicine alters those forecasts.

Now to the two arguments.