Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
Upside of Inequality Oxford Unintended Consequences

Taxation

Analysis of tax policy and its effects on work, investment, entrepreneurship, revenue, distribution, and economic growth. Coverage includes individual and corporate taxes, capital income, tariffs, tax incidence, and behavioral responses.

AI Summary. US debt held by the public peaked at a record 106.1% of GDP after World War II and fell as a share of the economy through 1974, aided by rapid growth, deficits averaging just 0.4% of GDP, and more tax increases than cuts. The federal deficit was 6.2% of GDP in fiscal 2026.

Justin Fox Bloomberg
Date Posted:

Both growth and fiscal restraint gradually erased the WWII debt burden. Tax increases in 1982–93 helped reverse the large deficits of the 1980s, contributing to surpluses in 1998–2001. In line with this history, growth alone is unlikely to stabilize the current debt trajectory.

Can economic growth alone bring down the national debt?

Core argument: US debt held by the public peaked at a record 106.1% of GDP in fiscal 1946 and fell as a share of GDP through 1974, aided by rapid growth and a fiscal balance averaging -0.4% of GDP from 1947 to 1974.

The Economic Recovery Tax Act of 1981, also known as the Reagan tax cuts, is remembered variously as a budget-busting disaster and the driver of a new era of growth. There’s some truth to both portrayals, but what doesn’t come up nearly enough is that the 1981 tax cuts were followed by tax increases in 1982, 1983, 1984, 1986 (just barely; that year’s Tax Reform Act was supposed to be revenue-neutral), 1987, 1990 and 1993. Thanks in part to the end of the Cold War, Congress was also able to reduce spending growth in the 1990s, with federal outlays falling from 21.7% of GDP in 1991 to 17.7% in 2000 and 2001. The result: four straight years of budget surpluses, and a debt-to-GDP ratio that fell from 47.9% in 1993 to 31.5% in 2001.

Takeaways by Macro Roundup® AI

  1. US debt held by the public peaked at a record 106.1% of GDP in fiscal 1946 and fell as a share of GDP through 1974, aided by rapid growth and a fiscal balance averaging -0.4% of GDP from 1947 to 1974.
  2. The US fiscal balance in fiscal 2026 was -6.2% of GDP, compared with the -0.4% average that accompanied the postwar decline in the debt-to-GDP ratio.
  3. Federal spending tripled in inflation-adjusted terms from 1947 to 1974 and rose from 16.1% to 17.8% of GDP, with revenue rising almost as fast in a period with more tax increases than decreases, according to a 2013 Treasury Department accounting of major tax legislation.

Related Articles:

  • Projections of Deficits and Debt Under Two Scenarios With Higher Interest Rates — The Congressional Budget Office projects that if interest rates run 1.5 percentage points above its economic forecast, deficits would be $6tn larger over 2026–2036, reflecting a $4.9tn rise in net interest costs and $1.1tn in added debt-service costs. Debt held by the public would reach 133.1% of GDP in 2036, 12.9 percentage points above its baseline.
  • The Budget and Economic Outlook: 2026 to 2036 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (5.8% of GDP) to $3.1tn (6.7%) over a decade, above the 3.8% averaged over the past 50 years, with rising net interest costs driving much of the increase. Federal debt held by the public is projected to rise from 101% to 120% of GDP.
  • How Might Fiscal Policy Respond to the Rise of Artificial Intelligence? — The Congressional Budget Office estimates that a permanent 0.5 percentage point increase in annual productivity growth would lower publicly held federal debt after 30 years by 39% of GDP, offsetting roughly half the projected rise from 101% of GDP to 175%. Higher revenue and slower spending growth outweigh higher interest costs.

AI Summary. California voters appear set to reject what would have been the first US wealth tax, but political strategists and experts argue that proposals to levy new taxes on billionaires remain politically viable. They point to broad Democratic electoral gains attributed in part to voter anger over billionaire influence in politics.

Eric Platt and Claire Jones Financial Times
Date Posted:

With ~61% of the vote counted, the proposed California wealth tax is on track to fail (~55.3% to ~44.7%). Separately, voters likely approved a constitutional amendment that would prohibit new state taxes on personal property, including financial assets, business holdings and intellectual property, by ~54% to ~46%.

Do wealth taxes on billionaires remain politically viable after a statewide defeat?

Core argument: California appears on track to reject Proposition 40, which would have created the first US wealth tax, though political strategists and experts say its demise could mark the beginning of the electoral battle over wealth taxes in the US.

California appears on track to reject the first US wealth tax but the Democrats’ storming national victory, driven in part by voter anger over plutocratic politics, means the idea of new levies on billionaires in America remains in play. The demise of Proposition 40 could mark the beginning of the electoral battle over wealth taxes in the US, according to political strategists and experts, as emboldened Democrats won races across the country that largely served as a stinging rebuke to the influence of billionaires in politics. Joseph Stiglitz added it was “only a matter of time” before a similar initiative took hold. “Significant changes rarely move in a straight line: in 1895 the US Supreme Court struck down the federal income tax, and 18 years later it was written into the constitution.”

Takeaways by Macro Roundup® AI

  1. California appears on track to reject Proposition 40, which would have created the first US wealth tax, though political strategists and experts say its demise could mark the beginning of the electoral battle over wealth taxes in the US.
  2. Democrats won races across the country in a victory driven in part by voter anger over plutocratic politics and largely serving as a rebuke to billionaire influence, leaving new levies on billionaires in play.
  3. Joseph Stiglitz argued it is “only a matter of time” before a similar wealth tax initiative takes hold, noting the US Supreme Court struck down the federal income tax in 1895 before it was written into the constitution 18 years later.

Related Articles:

  • A One-Time Tax With Lasting Effects — A proposed one-time 5% tax on California billionaires would still give them reason to leave after the snapshot date, since its retroactive residency provision faces legal challenges that may not survive. The author argues that expectations of future wealth taxes could drive relocation decisions whether or not such taxes materialize.
  • The Net Present Value of the Billionaire Tax Act: An Assessment of the Fiscal Effects of California’s Proposed Wealth Tax — A proposed one-time 5% California tax on the worldwide net worth of individuals above $1bn would have positive net present value only if its revenue exceeds the present value of income taxes lost to departing billionaires. The authors' simulations yield negative net present value in 71% of draws, averaging -$24.7bn.
  • Behavioral Responses to State Income Taxation of High Earners: Evidence from California — A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.

AI Summary. Italy has proposed a 26% tax on unrealized gains for people with assets of €800,000 or more who relocate abroad, a measure wealth advisers warn risks driving away wealthy expatriates drawn to cities such as Milan. Other countries, including the US, already impose similar exit taxes on wealthy individuals.

Amy Kazmin, Jamie John and Josh Spero Financial Times
Date Posted:

Italian Prime Minister Giorgia Meloni has proposed a 26% exit tax on profits accrued by individuals who have assets of €800,000 or more who decide to relocate from Italy.

Does taxing unrealized gains on departure risk driving away wealthy residents?

Core argument: Italy’s draft budget proposes a 26% tax on paper profits for people holding assets of €800,000 or more who relocate out of the country.

Italian Prime Minister Giorgia Meloni’s plan to impose an “exit tax” on people who leave Italy from next year risks driving away rich expatriates drawn to cities such as Milan over the past decade, wealth advisers have warned. In its draft budget submitted to parliament over the weekend, Meloni’s three-party coalition proposed a 26% tax on paper profits accrued by people who have assets of €800,000 or more and decide to relocate from Italy. Many other countries already impose an exit tax on wealthy individuals who relocate. The exit tax, which Meloni’s government has described as targeting the “super-rich”, will apply to people who were tax residents in Italy for six of the 10 years before their departure, but could also be refunded if financial assets are not liquidated for some years after they leave. In the US, those with a net worth above $2mn who give up their green cards or citizenship must pay capital gains tax on the paper gains of their assets across the world.

Takeaways by Macro Roundup® AI

  1. Italy’s draft budget proposes a 26% tax on paper profits for people holding assets of €800,000 or more who relocate out of the country.
  2. Wealth advisers warn that Giorgia Meloni’s proposed exit tax risks driving away rich expatriates drawn to Italian cities such as Milan over the past decade.
  3. The US imposes an exit tax requiring those with net worth above $2mn who give up green cards or citizenship to pay capital gains tax on paper gains of their worldwide assets.

Related Articles:

  • A One-Time Tax With Lasting Effects — A proposed one-time 5% tax on California billionaires would still give them reason to leave after the snapshot date, since its retroactive residency provision faces legal challenges that may not survive. The author argues that expectations of future wealth taxes could drive relocation decisions whether or not such taxes materialize.
  • The Net Present Value of the Billionaire Tax Act: An Assessment of the Fiscal Effects of California’s Proposed Wealth Tax — A proposed one-time 5% California tax on the worldwide net worth of individuals above $1bn would have positive net present value only if its revenue exceeds the present value of income taxes lost to departing billionaires. The authors' simulations yield negative net present value in 71% of draws, averaging -$24.7bn.
  • Behavioral Responses to State Income Taxation of High Earners: Evidence from California — A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.

AI Summary. A proposed one-time 5% tax on California billionaires would still give them reason to leave after the snapshot date, since its retroactive residency provision faces legal challenges that may not survive. The author argues that expectations of future wealth taxes could drive relocation decisions whether or not such taxes materialize.

Josuha Rauh, Benjamin Jaros, Gregory Kearney and Siddharth Gundapaneni The Fiscal Reality Check
Date Posted:

Moneyed individuals representing at least ~30% of California’s billionaire wealth have left the state ahead of the proposed Billionaire Wealth Tax.

Does a one-time wealth tax still give billionaires reason to leave?

Core argument: California’s Prop 40 one-time 5% wealth tax leaves billionaires with incentives to leave the state after the snapshot date, contrary to Gabriel Zucman’s claim that one cannot avoid the tax by moving.

[Responding to Gabriel Zucman's claim, “There is no incentive to move to another state. One cannot avoid the tax by moving. This is one of the main reasons why it was structured as a one-time tax.”] Billionaires still have incentives to leave after the snapshot date. They may reasonably question whether the retroactive residency provision will ultimately survive the many legal challenges it will face, and the passage of the tax may alter their expectations about future wealth taxation. Even if billionaires consider the initial 5% tax insufficient reason to leave California, the belief in the possibility of future, additional wealth taxes could change their decision-making, regardless of whether those taxes ultimately occur or not. This is not an unreasonable or merely hypothetical concern. Zucman himself has called the fight over California’s Prop 40 “the beginning of a global movement to end the ultra-rich’s ability to escape taxation with impunity.” Additionally, fellow Prop 40 proponent Emmanuel Saez said back in June that “we will have to see whether this one passes and then whether it makes sense to do a permanent wealth tax down the road.”

Takeaways by Macro Roundup® AI

  1. California’s Prop 40 one-time 5% wealth tax leaves billionaires with incentives to leave the state after the snapshot date, contrary to Gabriel Zucman’s claim that one cannot avoid the tax by moving.
  2. Billionaires may reasonably question whether Prop 40’s retroactive residency provision will survive the many legal challenges it will face.
  3. Gabriel Zucman has called the Prop 40 fight “the beginning of a global movement to end the ultra-rich’s ability to escape taxation with impunity,” and Emmanuel Saez raised the prospect of a permanent wealth tax later, which could shift billionaires’ expectations.

Related Articles:

AI Summary. A National Bureau of Economic Research working paper estimates that Norway's tax reforms, which nearly doubled the effective marginal tax rate on business wealth from 0.47% to 0.88%, prompted at most 74–98 wealthy individuals to emigrate, cutting wealth tax revenues by about 2%. The author finds no evidence of reduced corporate investment or higher bankruptcy rates.

Marius Ring National Bureau of Economic Research
Date Posted:
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Norway’s 2021–24 tax reforms nearly doubled the effective wealth tax on business equity, from 0.47% to 0.88%. Though 100 of the wealthiest individuals emigrated, wealth-tax revenues rose from 2021 to 2024, with no significant decline in investment among Norwegian-owned firms.

How much wealth tax revenue is lost when business wealth taxes double?

Core argument: Marius Ring estimates that Norway’s 2021–2024 tax reforms, which nearly doubled the effective marginal tax rate on business wealth from 0.47% to 0.88%, drove at most 74–98 individuals to emigrate, roughly 1.78% of the top 0.1% of the taxable wealth distribution.

The [reforms increased the] top statutory tax rate from 0.85% to 1.1%, while preferential treatment of stocks in private and public companies was substantially reduced. Hence, the reform almost doubled the top marginal tax rate on business wealth from 0.47% to 0.88%. Figure 2 plots outmigration rates for individuals in different wealth bins. My estimates suggest that about 1.78% of the top 0.1%, or about 0.24% of the top 1% migrated due to the reform. This amounts to 74–98 individuals. Panel A of Figure 5 shows total wealth tax revenues around the reform. Reform-driven outmigration thus lowers the revenue increase from 75.1% to 71.5%, while the remaining reduction to 70.4% reflects outmigration predicted by pre-reform trends. Figure 15 considers the effect on corporate investment. I find no indication of reduced investment rates during 2022–2024. I can reject reductions in the investment rate larger than 1.2 percentage points, about half the predicted reduction in a standard model with no financial frictions, in which the reforms increase the user cost of capital.

Takeaways by Macro Roundup® AI

  1. Marius Ring estimates that Norway’s 2021–2024 tax reforms, which nearly doubled the effective marginal tax rate on business wealth from 0.47% to 0.88%, drove at most 74–98 individuals to emigrate, roughly 1.78% of the top 0.1% of the taxable wealth distribution.
  2. Ring finds no evidence that Norwegian-owned firms raised dividend payouts or cut investment rates during 2022–2024, with 95% confidence intervals excluding investment rate reductions larger than 1.2 percentage points, about half the 2.2 points predicted by a standard frictionless user-cost model.
  3. Norwegian wealth tax revenues rose 71.5% from 2021 to 2024 net of reform-driven outmigration, against a counterfactual 75.1% absent outmigration, with emigration estimated to reduce revenues by 0.65 billion NOK, or 2.05% of counterfactual revenues.

Related Articles:

AI Summary. Federal Reserve Bank of New York researchers estimate that about 26% of a uniform tariff passes through into non-oil consumer goods prices over twelve months, with roughly 64% of that effect coming directly from higher import prices and the rest through domestic producers' input costs and markups. Pass-through into import prices is nearly immediate, while domestic price responses build gradually.

Mary Amiti,Sebastian Heise and David Weinstein Federal Reserve Bank of New York
Date Posted:
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FRBNY estimates that a uniform 10% tariff raised consumer-goods prices 2.6% after 12 months: 1.7pp directly via imported final goods, and 0.9pp mainly via higher imported-input costs for domestically produced goods, with the latter effect building over 9–12 months.

How much of a tariff reaches consumer prices within a year?

Core argument: Amiti, Heise, and Weinstein estimate that a uniform tariff passes through to non-oil consumer goods prices at roughly 26 percent over twelve months, with a 10 percent tariff raising prices 2.6 percentage points, 1.7 points of it via the direct import channel.

Tariff pass-through into U.S. import prices is nearly complete. Instrumenting realized duty rates with statutory tariffs to account for endogenous sourcing and exemptions, tariff pass-through into consumer-goods import prices is about 90.5%; a 10% increase in the duty rate raises import prices about 9.1%. At twelve months, a uniform 10% tariff raises consumer-goods prices 2.639%: 1.694pp through the direct channel, 0.770pp through marginal costs, and 0.175pp through strategic complementarity. Import-price pass-through is essentially immediate, while domestic prices adjust gradually; the contribution of the two indirect channels roughly doubles between six and twelve months, with much of the overall adjustment occurring within nine to twelve months. For the actual 2025–26 tariffs, the direct channel accounts for about 70% of the estimated effect; the marginal-cost channel accounts for about 22%, with strategic complementarity accounting for the remainder. Because the regressions include date fixed effects, the tariff contribution is identified relative to less-exposed goods and should be read as illustrative rather than as the absolute contribution to aggregate goods CPI.

Takeaways by Macro Roundup® AI

  1. Amiti, Heise, and Weinstein estimate that a uniform tariff passes through to non-oil consumer goods prices at roughly 26 percent over twelve months, with a 10 percent tariff raising prices 2.6 percentage points, 1.7 points of it via the direct import channel.
  2. The two indirect channels — marginal costs from imported inputs (0.77 percentage points) and strategic complementarity in domestic markups (0.17 points) — account for 36 percent of the total effect and roughly double between six and twelve months after tariff implementation.
  3. Applied to the actual 2025–26 tariff schedule, the authors estimate the cumulative tariff contribution to goods CPI reached about 2.9 percentage points by February 2026, with import-price pass-through near 90 percent and retail pass-through of 0.56.

Related Articles:

  • The State of U.S. Tariffs July 24, 2026 — The average statutory US tariff rate stands at 11.1% and, under current law including scheduled increases, is projected to reach 11.8% by year-end. The authors estimate current-law tariffs will raise consumer prices by about 0.7% and generate roughly $1.9tn over ten years, with revenue somewhat lower after accounting for tariffs' negative effect on economic output.
  • Who Is Paying for the 2025 U.S. Tariffs? — The authors estimate that 94% of U.S. tariff costs were borne domestically over the first eight months of 2025, with a 10% tariff associated with only a 0.6 percentage point decline in foreign export prices. Pass-through into U.S. import prices later declined to 86%, shifting more of the burden to foreign exporters.
  • Demand-Driven Inflation — Demand and supply curves estimated from pre-pandemic data imply relatively flat demand curves in the US and euro area, so adverse supply shifts would produce large output losses but comparatively little inflation. The authors argue explaining the observed combination of high inflation and output requires outward demand shifts, including accommodative monetary policy alongside fiscal expansion.

AI Summary. Incorporating tariffs into the standard cost-of-capital framework, researchers estimate US tariffs raised the economy-wide marginal effective tax rate on new investment by 4.2 percentage points to 17.0%, with equipment hit hardest at 26.1 percentage points. That increase offsets the 3.5 percentage point reduction from the One Big Beautiful Bill Act.

Kyle Pomerleau, Thomas Brosy, Robert McClelland and John Wong American Enterprise Institute
Date Posted:
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The IEEPA tariffs through January 2026 raised equipment’s user cost of capital 9%, from 17.7% to 19.3%. With depreciation unchanged, the required pre-tax net return rose 1.6pp, 4.3% to 5.9%, a tax at purchase that expensing cannot eliminate.

Do tariffs raise the effective tax rate on new investment?

Core argument: Tariffs in force before the February 20, 2026 Supreme Court ruling in Learning Resources v. Trump raised the economy-wide marginal effective tax rate on new US investment by 4.2 points, from 12.8 percent to 17.0 percent, and the cost of capital by 2.7 percent, the AEI authors estimate.

The standard Hall-Jorgenson user cost of capital framework defines the minimum gross required return on an additional unit of capital. The service price of capital (SS) is the minimum pretax gross return required on a new investment; the minimum pretax net return (ρrho) equals SS minus economic depreciation. Consider imported equipment requiring a 25% gross return: 20% to cover depreciation and 5% shareholders’ demanded return. A 10% tariff raises the cost of capital to 27.5%. [Thus the minimum pretax net return—the hurdle rate—rises from 5% to 7.5%]. For equipment, tariffs raise the cost of capital 9%, from 17.7% to 19.3%: 86% of the burden is direct, 14% indirect. 100% bonus depreciation reduced the equipment METR from 19.1% to 4.1%; tariffs raised it to 30.3%, more than offsetting the tax cut.

Takeaways by Macro Roundup® AI

  1. Tariffs in force before the February 20, 2026 Supreme Court ruling in Learning Resources v. Trump raised the economy-wide marginal effective tax rate on new US investment by 4.2 points, from 12.8 percent to 17.0 percent, and the cost of capital by 2.7 percent, the AEI authors estimate.
  2. Equipment bore the largest estimated burden, with its marginal effective tax rate rising 26.1 points from 4.1 percent to 30.3 percent and its cost of capital up 9.0 percent, while mainframes and PCs saw a 26.6 percent cost-of-capital increase.
  3. The estimated 4.2 point tariff-driven increase in the marginal effective tax rate offset the One Big Beautiful Bill Act’s 3.5 point reduction, leaving a net 0.8 point rise economy-wide and an 11.1 point net increase for equipment.

Related Articles:

  • Blunt Tariffs Undermine Efforts To Reshore High-Tech Manufacturing — Computer and electronic products manufacturers import 37% of their intermediate inputs and capital equipment, chemical manufacturers 33%, and transportation equipment manufacturers 27%. Broad tariffs may push some sourcing domestically over time, but many inputs will simply cost more, making American manufacturers less competitive globally.
  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.
  • Tariffs are Dumb Enough to (Almost) Work — A universal 15% tariff on imported goods could raise roughly $300–$400bn annually, a fraction of what a value-added tax would generate but real revenue given U.S. imports of about $4tn. The author argues tariffs are a poorly designed form of consumption tax that could build political groundwork for replacing them with a more efficient value-added tax.

AI Summary. An analysis finds a Social Security tax-increase package lowers the debt-to-GDP ratio by 14.3 percentage points, with 97% of that coming from smaller Social Security deficits rather than economic growth. A benefit-reduction package cuts the ratio by 29.2 percentage points, raising long-run GDP by 12.1% versus 0.4%.

Andrew Biggs American Enterprise Institute
Date Posted:

A Penn-Wharton simulation finds that restoring Social Security solvency with tax increases alone would cut debt/GDP by ~14pp by 2060, while a fix based only on benefit cuts would cut it by ~29pp.

How do benefit cuts and tax increases differ in reducing debt-to-GDP?

Core argument: The benefit-reduction package cuts the debt/GDP ratio by 29.2 percentage points in the long run, more than twice the 14.3 percentage points under the tax-increase package.

The first figure [in the gallery] decomposes the tax-increase reform package’s improvement to the debt/GDP ratio into separate effects: how much does it cut debt versus how much does it raise GDP? Almost all of the tax-increase plan’s improvement in debt/GDP comes from lowering federal debt by raising taxes. The plan has a small negative effect on the economy in the short run and a small positive effect in the long run. But 97% of its 14.3 percentage point long-run reduction in debt/GDP comes simply from reducing Social Security’s deficits. The economy is little-changed relative to a baseline in which Congress simply borrows to pay Social Security benefits. The benefit-reduction package [second figure in the gallery] tells a different story. It reduces debt/GDP by 29.2 percentage points, more than twice as much as the tax-increase package. Part of that comes from a larger reduction in debt: 17.2 percentage points versus 13.9. But the real kicker comes from higher long-run GDP: 12.1% under the benefit-reduction package versus just 0.4% under the tax-increase package.

Takeaways by Macro Roundup® AI

  1. The benefit-reduction package cuts the debt/GDP ratio by 29.2 percentage points in the long run, more than twice the 14.3 percentage points under the tax-increase package.
  2. Of the tax-increase plan’s 14.3 percentage point long-run reduction in debt/GDP, 97% comes from reducing Social Security’s deficits, leaving the economy little changed relative to a baseline in which Congress borrows to pay benefits.
  3. Long-run GDP rises 12.1% under the benefit-reduction package versus 0.4% under the tax-increase package, with debt falling 17.2 percentage points versus 13.9.

Related Articles:

  • The Fairest Way to Reform Social Security May Also Be the Worst Way to Grow the Economy — Fully closing Social Security's funding gap by raising the payroll tax rate would require an immediate, permanent increase from 12.4% to 17.6%, which would reduce labor supply and economic growth. Research on a prior benefit cut found affected Americans raised earnings by 61 cents per dollar of lost benefits, generating additional payroll tax revenue.
  • How Federal Spending is Distributed by Age — An analysis classifying $4.4tn of $7tn in federal spending by age finds retirees aged 65 and older receive $2.7tn, 38.6% of total outlays and 61.9% of age-assignable spending, versus $1.2tn for working-age adults and $449bn for those under 26. Social Security and Medicare account for 80% of age-assignable spending on older adults.
  • The Great “Transfer”-mation — Government transfers rose from 8.2% of Americans' total personal income in 1970 to 17.6% in 2022, making them the third largest income source after work and investments. The share of U.S. counties drawing a quarter or more of personal income from transfers rose from under 1% in 1970 to 53% in 2022.