Social Security is by far the largest federal government spending program, constituting 21 percent of the federal budget, or $1.3 trillion, in FY 2023—larger than the entire nondefense discretionary budget. The latest trustees report shows the program is on a fiscally unsustainable path that will exacerbate the US debt crisis if its imbalances are not addressed in the near term. By 2035, the Old-Age, Survivors, and Disability Insurance (OASDI) Trust Fund will be depleted, and current payroll taxes will only be able to fund 83 percent of the scheduled Social Security benefits. Absent any reforms, Social Security recipients would immediately face a 17 percent cut in benefits.
Given the poor state of the budget process and worsening debt trajectory, lawmakers should move boldly and quickly to address the issue, including via a fiscal commission process. Issues to consider should include reforms to both spending and taxes.
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If lawmakers are serious about pro-growth policies and fiscal responsibility, they will need to put policies forward that achieve those goals. Simply adjusting the baseline doesn’t reduce actual deficits in the coming years.
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New IRS data shows the US federal income tax system continues to be progressive as high-income taxpayers pay the highest average income tax rates. Average tax rates for all income groups remain lower after the Tax Cuts and Jobs Act (TCJA).
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The Social Security trust funds face looming insolvency if policymakers don’t reform the program. One issue that garners a lot of attention in the debate over solutions is the payroll tax cap.
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Fiscal pressures are likely to weigh heavily on lawmakers as they craft a tax reform package. That increased pressure could result in well-designed tax reform that prioritizes economic growth, simplicity, and stability, or it could encourage budget gimmicks and economically harmful offsets. Lawmakers should avoid the latter.
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We estimate Trump’s proposed tariffs and partial retaliation from all trading partners would together offset more than two-thirds of the long-run economic benefit of his proposed tax cuts.
12 min read
While federal tax collections—especially corporate taxes—have reached historically high levels, these gains have not kept pace with escalating spending, particularly on debt interest, leading to a substantial and concerning budget deficit in FY24.
6 min read
CBO data shows that the federal fiscal system—both taxes and direct federal benefits—is getting more progressive and redistributive in 2024.
7 min read
Social Security is by far the largest federal government spending program. The latest trustees report shows the program is on a fiscally unsustainable path that will exacerbate the US debt crisis if its imbalances are not addressed in the near term.
33 min read
The government provides various services at the federal, state, and local levels. How are they paid for? Taxes.
Gov. Walz’s tax policy record is notable because of how much it contrasts with broader national trends. In recent years, most governors have championed tax cuts. Walz, rare among his peers, chose tax increases.
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Exempting Social Security benefits from income tax would increase the budget deficit by about $1.6 trillion over 10 years, accelerate the insolvency of the Social Security and Medicare trust funds, and create a new hole in the income tax without a sound policy rationale.
6 min read
Reviewing reported income helps to understand the composition of the federal government’s revenue base and how Americans earn their taxable income. The individual income tax, the federal government’s largest source of revenue, is largely a tax on labor.
9 min read
Short FormImproving the country’s fiscal situation won’t be comfortable, but economic growth can help cushion the blow.
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The 2021 tax year was the fourth since the Tax Cuts and Jobs Act (TCJA) made many significant, but temporary, changes to the individual income tax code to lower tax rates, widen brackets, increase the standard deduction and child tax credit, and more.
9 min read
Creative options including changes in Social Security benefits growth for higher earners and reforms to how Medicare compensates for health services should be on the table, along with broad-based and well-structured tax reforms.
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The CBO projects deficits will be higher than historical levels, largely due to growth in mandatory spending programs While some recent legislation has reduced the deficit, the Inflation Reduction Act is proving to be more expensive than originally promised.
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Thirty-four states will ring in the new year with notable tax changes, including 15 states cutting individual or corporate income taxes (and some cutting both).
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Outside of the pandemic years, this year’s federal deficit is the highest in U.S. history. While tax revenue has increased about 28 percent since the pre-pandemic year 2019, spending has increased about 46 percent. Annual deficits are headed towards $3 trillion over the next few years.
3 min read
Now is the time for lawmakers to focus on long-term fiscal sustainability, as further delay will only make an eventual fiscal reckoning that much harder and more painful. Congressional leaders should follow through on convening a fiscal commission to deal with the long-term budgetary challenges facing the country.
35 min read