Saturday, December 1, 2012

Laura Tyson Outlines The Right Approach To Fiscal Balance

Laura Tyson was one of the top economic advisers to Bill Clinton during his administration.  We had our budget surpluses during his administration.  He raised taxes, and cut government spending where it needed to be cut.  The administration is now negotiating with the GOP to rebalance the federal budget.  She supports the administration's plan to bring the top marginal tax rate back to where it was in the Clinton administration.  The economy grew very well in the Clinton administration despite the higher marginal tax rate.  She makes several other points that are worth repeating.  The GOP lumps Social Security along with Medicare and Medicaid by referring it to entitlements that need to be cut.  Social Security is not a budget problem, and it should not be on the table,  There is over $2 trillion in the Social Security Trust Fund.  The government borrowed this money from the trust fund and now it is time to repay the debt. Ronald Reagan raised the payroll tax during his administration to cover the cost of the baby boomer generations retirement.  We should ignore those who claim that SS is insolvent.  We should also remember that Reagan substantially cut the top marginal tax rates in his administration to create the SS surplus.  Borrowing from the SS surplus enabled him to cut taxes for the wealthy, while minimizing the impact on his budget deficits.

We do have a problem with rising healthcare costs.  The Affordable Care Act (ACA) will help to contain Medicare cost growth.  Medicare costs per beneficiary are projected to fall to 3.1% under under ACA.  That is about equal to the projected growth in GDP per capita.  Medicare cost per beneficiary  is lower that private insurance cost per beneficiary, and ACA will increase that advantage.  ACA contains other programs that will also reduce healthcare costs.  The sooner we implement ACA, the better it will be for Medicare.

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