A Future-Oriented US Fiscal Policy

NEW YORK – At last, Republican candidates in the US presidential campaign have begun focusing on the economy. At a time of rising anxiety among middle-income voters about wealth inequality, and growing awareness of the unsustainability of Social Security and Medicare, this conversation could not be more important. Unfortunately, not enough attention is being paid to the link between these two key issues.

In fact, tackling the problems with Social Security and Medicare is the key to addressing what ails the middle class. But fiscal-policy progressives, in particular, remain fixated on using higher tax rates on the wealthy to fund higher incomes for everyone else.

Income redistribution may be an attractive idea for some – including, to a lesser extent, the Republicans who support a watered-down version, in which relatively high marginal tax rates support expanded family assistance – but it is fool’s gold. As a recent Brookings Institution paper shows, higher marginal tax rates would do little to diminish income inequality in the US.

Likewise, higher taxes cannot resolve the problem posed by the mounting unfunded liabilities of Social Security and Medicare. Maintaining these programs in their current form would require growth-destroying tax increases on middle-income Americans, as well as continuing cuts in government funding for defense, education, and research.