𖦹🚨Debt Spiral Alert 🚨꩜

CBO thinks R>G by 2031 -- meaning interest rates will exceed the growth rate. At that point, debt can spin out of control!

A short 🧵 1) When the average interest rate on debt (R) is below the economic growth rate (G), it provides a big assist for debt sustainability.

Existing Debt-to-GDP always erodes with G faster than it grows with R -- so only new borrowing grows debt.

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https://x.com/MarcGoldwein/status/1709624930344595902?s=20

🚨Introducing the Employer Compensation Tax🚨 - Our first novel Trust Fund Solution. The ECT would:
⦿ Fix 2/3 of Social Security's shortfall & 1/2 of Medicare's
⦿ Increase progressivity
⦿ Support economic growth
⦿ Improve efficiency
⦿ Reduce health cost growth

THREAD .... 1/ Some background:

▷ Social Security & Medicare are funded with a 15.3% wage tax split between worker and employer. The 12.4% Social Security portion applies to wages up to ~$180k.
▷ The revenue is well short of costs, and both programs will be insolvent in seven years.

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🚨 We have a FULL SCORE of the House Reconciliation Bill🚨

As written, it will:
⚫ Add $3.3 trillion to the debt through 2034
⚫ Cost $600 billion in 2027, alone
⚫ Boost 2034 debt to 125 percent of GDP

But arbitrary expirations obscure the cost. If permanent ... 1/5🧵 If made permanent, the House bill would:
⚫ Add $5.2 trillion to the debt
⚫ Boost 2034 deficits to $3.3 trillion
⚫ Push annual interest costs to $2 trillion
⚫ Increase debt to nearly 130 percent of GDP

This is despite $2.5 trillion in offsets...2/5

🚨FINAL ANALYSIS🚨

Vice President Harris would add roughly $4 trillion to the national debt, under our central estimate.

President Trump would add almost $8 trillion to the national debt, under our central estimate.

READ: via @BudgetHawks

Short 🧵crfb.org/papers/fiscal-… 2) Over the past year or so, my team has painstakingly tracked, interpreted, & estimated every policy proposal put forward by @realDonaldTrump and @KamalaHarris.

We did our best* to translate campaign-level detail to policy and created a high, low, and central estimates.

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*When campaign documents did not provide enough detail, we used information from conversations with campaign staff, speeches, press interview, proposals in the budgets the candidates have previously supposed, and other similar proposals. Our ranges often reflect different possible interpretations, with the central being what we view as the most likely interpretation.

🚨 BREAKING 🚨 - Pres Trump’s campaign plans would lead to a 𝟑𝟑 𝐩𝐞𝐫𝐜𝐞𝐧𝐭 𝐒𝐨𝐜𝐢𝐚𝐥 𝐒𝐞𝐜𝐮𝐫𝐢𝐭𝐲 𝐂𝐮𝐭 ✂️ by driving the #SocialSecurity to 𝒊𝒏𝒔𝒐𝒍𝒗𝒆𝒏𝒄𝒚 by 𝟐𝟎𝟑𝟏.

See crfb.org/blogs/what-wou…

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The Trump plans will drain $𝟐.𝟑 𝐭𝐫𝐢𝐥𝐥𝐢𝐨𝐧 from the trust funds by ending taxation of benefits, eliminating taxes on tips and overtime, deporting immigrants, who currently pay payroll taxes, an increasing cost-of-living, and thus COLAs through higher tariffs. 2) Under current law, CBO projects #SocialSecurity will run out of reserves by 2034 –– nine years after the next president takes office –– leading to a 23% across-the-board benefit cut.

Under Trump’s plans, beneficiaries face a 𝟑𝟑 𝐩𝐞𝐫𝐜𝐞𝐧𝐭 benefit cut starting in 2031.

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🚨 New Analysis 🚨

Deficits and debt have exploded since 2001.

𝑩𝒐𝒕𝒉 𝒍𝒐𝒘𝒆𝒓 𝒕𝒂𝒙 𝑨𝑵𝑫 𝒉𝒊𝒈𝒉𝒆𝒓 𝒔𝒑𝒆𝒏𝒅𝒊𝒏𝒈 𝒂𝒓𝒆 𝒕𝒐 𝒃𝒍𝒂𝒎𝒆

@Budgethawks has the receipts to prove it - read here:

🧵crfb.org/papers/riches-… 1) Since 2001, the US turned a $128 billion surplus into a $1.7 trillion deficit a tripled debt-to-GDP to 98 percent.

We try to explain causes of this deterioration 2 ways:
1) By analyzing the cost of policy actions since 2001
2) By analyzing differences between 2001 & 2023

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🧵𝐖𝐨𝐧𝐤-𝐓𝐡𝐫𝐞𝐚𝐝🧵

With interest rates at a 16-year high and surging, it’s a good time to talk what 𝐑 𝐯𝐞𝐫𝐬𝐮𝐬 𝐆 means for debt dynamics.

In summary:
⦿ 𝐑<𝐆 improves debt sustainability
⦿ 𝐑<𝐆 doesn't guarantee sustainability
⦿ 𝐑>𝐆 now, so that's bad!

🧵 1) Let’s start with some basics…

R = the average interest rate in government debt.
G = the average growth rate of GDP.

For the last 15 years, and much of history, R has been below G (𝐑<𝐆).

That’s good for debt sustainability, but it might be over.

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🚨We have a new paper on 𝙁𝙞𝙨𝙘𝙖𝙡 𝙋𝙤𝙡𝙞𝙘𝙮 𝙞𝙣 𝙖 𝙏𝙞𝙢𝙚 𝙤𝙛 𝙃𝙞𝙜𝙝 𝙄𝙣𝙛𝙡𝙖𝙩𝙞𝙤𝙣🚨

The tl;dr -- The Federal Reserve is and should be in charge if fighting inflation. But when things are this bad, fiscal policy should help.

🧵

crfb.org/papers/fiscal-… 1) The Federal Reserve should lead the fight against inflation.

@jasonfurman & Elmendorf explained, the Fed can

"Act quickly & effectively to adjust interest rates, using its technical expertise & political insulation to balance competing priorities"

brookings.edu/research/if-wh… 2/

Student debt analysis cancellation is NOT justified to rectify financial harm from COVID-19:
⚫Borrowers are already richer from COVID relief
⚫Delinquency spike claims are based on a math error
⚫Inflation erodes debt
⚫Cancellation is poorly targeted

crfb.org/blogs/student-… 1/ Remember, personal income was HIGHER in 2020 and 2021 than trend thanks to $6 trillion of COVID relief. And now unemployment is at a 50-year low.

The White House has bragged that “household finances are stronger than pre-pandemic."

We don't need debt cancellation.

🎂 HAPPY CBO DAY 🎂

The @USCBO is releasing their new “baseline” today at 2pm.

We expect it to show a one-time fall in deficits and debt-to-GDP, followed by perpetual increases.

A short 🧵 1) After running $3 trillion deficits in 2020 and 2021, the 2022 deficit will likely be closer to $1 trillion.

No one has enacted ‘debt reduction’ to achieve this.

The main reason for this drop is the expiration of most COVID relief - which cost ~$2 trillion in 2021.

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🚨🌍 NEW ANALYSIS🌍🚨 - A carbon tax would strengthen BBB's climate provisions. Together they could generate up to $900b of net savings and reducing emissions by 30%!

Via @BudgetHawks: crfb.org/papers/can-car…

THREAD. 1) Build Back Better would spend $550 billion to slow the effects of climate change, including $325 billion of tax breaks and $225 billion of spending.

According to analysis by @EnergyInnovLLC, this would reduce GHG emissions by 17% by 2030 - about half way the Paris target.

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