9 Insights on Debt, Taxes and the Economy from a Former CBO Director
Policy + Politics

9 Insights on Debt, Taxes and the Economy from a Former CBO Director

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Doug Elmendorf, an Ivy League economist with vast experience in government, won high praise from both parties during his tenure as director of the Congressional Budget Office from 2009 to early 2015.

Although he was installed in that post by Democrats, Elmendorf was widely regarded as scrupulously fair and even handed in presiding over a non-partisan agency charged with analyzing congressional proposals and budgets and producing closely-watched reports on long-term trends in spending, taxes, entitlements and the debt and deficit.

Related: Former CBO Chief Explains How Bad Our Budget Problems Can Get

While Elmendorf had the instincts of a liberal economist who had spent much of his career at the Federal Reserve, the Council of Economic Advisers and the Brookings Institution, it was critical that he frequently mask his personal opinions in testimony and appearance to avoid clashing with more conservative Republican lawmakers.

That was particularly true on such hot-button issues as the Affordable Care Act, the long-term debt, spending on entitlements and social programs, and even the economic challenges of climate change.

For his six years at CBO, Elmendorf’s provided Congress with objective, nonpartisan analysis, as his current colleagues at the Brookings Institution noted last week. “He did not tell Congress what to do about critical economic issues – but that’s changing.”

Elmendorf, currently a visiting fellow in Economics Studies at Brookings who will take over in January as dean of Harvard’s John F. Kennedy School of Government, is sounding off in a Brookings series of videos on a wide range of topics.

Related: Elmendorf Says Congress Never Meant to Limit Obamacare Subsidies

Those include his views on the long-term challenges of the federal debt, the direction the government should take on spending and tax reform and his ringing defense of the Affordable Care Act – despite the program’s manifest problems with rising premium and out-of-pocket costs and disappointing enrollment projections.  

Here is what he had to say on nine important questions:

1. Are deficits and debt today’s biggest economic problems? The biggest economic problems we face are slow growth of the economy as a whole and the fact that over the past few decades, many people in the lower and middle part of income distributions have benefitted very little from the growth of overall output and income. But we should still be worrying about deficits and debt for the long run. It’s not the size of today’s deficits; it’s the amount of federal debt we have accumulated in the past several years, and projection of rising deficits in the long term that are the sources of concern.

2. How much should we worry about the federal deficit and debt? – The problems with federal debt are not what’s happening today, but what might happen in the future. Right now interest rates are very low. The burden of making payments on the federal debt is also quite low. But interest rates are going to rise as the economy continues to expand and then the burden of making payments on the federal debt will go up as well. Beyond that, there’s a risk in having such a large amount of federal debt, because if we encounter unexpected problems in the form of another financial crisis or a deep recession, or overseas, where we need to take more vigorous actions, then it will be harder to respond in the ways we will want.  

Related: New CBO Director Renews Warning on Long-Term Debt

3. What’s driving up the federal debt? The fundamental driver of increasing federal spending over time is the increase in spending for Social Security and Medicare. And spending for those programs are going up mostly because of the aging of the population. Many more people are becoming eligible for those problems every day. And because of that, health care spending will continue to rise faster than the total economy will increase.  

4. Who should bear the burden of changes to spending and taxes in the U.S.? As we think about decisions on federal spending and taxes, we should be very conscious of the fact that many people across much of the income distribution have benefitted very little from the growth of overall output and income over the past few decades. And that means as we make changes to federal spending and taxes we should make those changes that don’t impose much of the burden on people of modest income. That means not taking big cuts in means-tested programs, and it means not making big, across the board cuts in benefits – for example for Social Security – because those benefits are especially important for people who don’t have a lot of private income and wealth. So if we make changes in federal spending and taxes, we should make them in ways that impose most of the burden on the affluent, because those are the people who have benefitted the most from growth in output and income over the past few decades.

5. Why is it so hard to put the federal budget on a sustainable fiscal path? Right now, U.S. fiscal policy is on an unsustainable path. Debt will rise as a share of the economy over the long run. But trying to knock that down, trying to put that trajectory on a more stable place is difficult because it requires either increasing the taxes people pay or cuts in the benefits and services that they receive. So for all of the people being concerned about growth in the government in the abstract, when it comes to specific benefits or specific services, they generally want to keep getting what they’re getting. So to cut that amount of spending a lot will impose burdens on people that they’re not going to like. So there’s a set of difficult choices that policy makers make, and I don’t think the American people are sending very clear signals to their elected representatives. 

Related: CBO: Long Term Debt Poses “Serious Negative Consequences”   

6. How can government help kids move out of poverty? I think we can do a number of things to help strengthen economic mobility but none of that are panaceas. One important direction is to strengthen our educational system, and that means expanding pre-kindergarten programs, making sure our primary and secondary education are really teaching kids the skills that they need. We can’t graduate people who haven’t actually learned how to read and write and do math. . .  other countries spend a lot more on worker training than we spend in this country. I think we need to do more of that. That will help people to advance economically in their lifetime.

7. How should the government deal with climate change? Scientists are quite convinced that the climate is changing because of human emissions of carbon dioxide and other greenhouse gases. I think economists are quite convinced that the most effective way to reduce emissions of greenhouse gases is to put a price on those emissions. If you put a price on emissions through a carbon tax or a cap and trade system then you are providing a market incentive for people to economize on emissions that may vary. And that kind of incentive can reduce emissions at the lowest possible cost to our outputs and income.

8. What policies will increase the pace of U.S. economic growth? I think there are five things we can do with fiscal policy that would increase economic growth. One is to maintain federal investment as a share of GDP. The second is to reform the tax code to increase the efficiency of business investment. The third is to encourage innovation. The fourth is to reduce the federal debt relative to the size of the economy, but only slowly. And the fifth is to reduce the uncertainty.

Related: Obamacare Is Now on Life Support

9. Is Obamacare working? -- The Affordable Care Act is working. The number of people with insurance coverage through Medicaid is about 10 million higher than it would have been without the Affordable Care Act and about 10 million people are receiving insurance coverage through these new insurance exchanges. Almost none of those 20 million people would have had health insurance without the Affordable Care Act. So the act is doing what it set out to do, which is to greatly reduce the number of people without health insurance. It is doing that at a cost – the cost is federal subsidies and changes in rules in insurance markets, but the act is basically working in that sense.”