Regarding “Why Americans Are Down on a Strong Economy” (Page One, Feb. 8): America is on what Federal Reserve Chairman Jerome Powell calls “an unsustainable fiscal path.” Well into the business cycle, we are pumping fiscal stimulus equal to an unprecedented 6% of GDP and a quarter of all government spending into the economy, with no end in sight. Federal debt has risen from 70% of GDP after the financial crisis to nearly 100% today, following $5 trillion of pandemic spending to close what was likely a $1 trillion shortfall.
Tax revenues as a share of GDP are projected to remain above their 50-year average, but spending has grown to a historically high 23% of GDP from 19% before the financial crisis. Only half that increase is driven by retiring baby boomers, whose growth is expected to increase spending by another 2% of GDP over 10 years.
A political resolution doesn’t seem likely. Retirees have pitted Democrats against Republicans to avoid benefit cuts. Policy makers are unlikely to raise middle-class taxes—they are engineering cuts by expanding the child tax credit. Heavy tax increases on the highest earners are estimated to contribute less than 2% of GDP.
Without greatly accelerating productivity growth, this is reckless driving. Americans are wisely alarmed.
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