Now that Democrats control the House, the question on many minds is what they will do with it.
Incoming Majority Leader Nancy Pelosi says Democrats will focus on corruption, money in politics, drug prices, gun control and protecting young immigrants. These are important but, in my view, second-order issues.
The biggest challenges facing the U.S. are much deeper and seriously jeopardize Americans’ future prosperity. Namely, soaring national debt, Social Security’s solvency and the lack of affordable health care.
As an economist, I’ve spent a lot of time researching and writing about these issues. And as a presidential candidate in 2016, I tried to put them on the national agenda when I staged an independent write-in campaign.
Were I leading the House Democrats right now, I would focus on passing three key bills. The Senate would likely turn them down, but their passage would show the country that Democrats are prepared to govern.
The US$200 trillion fiscal gap
It starts by acknowledging the true state of America’s fiscal condition.
No politician that I know of has ever told the truth about this, either because he or she didn’t know the truth or were hiding it. Brace yourself. Here’s where we really stand.
The official debt is $21.7 trillion – more than the value of all goods and services that will be produced in the U.S. this year. But this ignores massive unfunded obligations that have been kept off the books, such as paying for future Social Security, Medicare and Medicaid benefits.
When you calculate the present value of all anticipated future outlays less all the receipts projected by the Congressional Budget Office, you get a whopping $200 trillion fiscal gap. This is how much we – or more accurately our children – really owe.
Closing this fiscal gap will require dramatic changes, including much higher taxes and drastic spending cuts. Yes, Republicans hate the former and Democrats loathe the latter. But the longer we wait to do this, the larger the taxes our kids – or theirs – will pay and the lower the benefits they will receive. And at some point, America’s decades long intergenerational Ponzi scheme will collapse.
There is hope, however. Several simulations and studies I’ve conducted suggest three basic reforms that could largely eliminate the $200 trillion fiscal gap – while reducing rising levels of inequality in the process.
Real tax reform
Let’s start with taxes.
The current fiscal system is riddled with inefficiencies, and what’s worse it lets the superrich pay literally zero taxes. This means there are ways to increase revenue without creating major burdens on the poor or middle class.
I would ask the now Democrat-controlled House Ways and Means Committee to draw up legislation to get rid of the current corporate income, personal income and FICA taxes. I would replace them with a value added tax, a highly progressive personal consumption tax, a progressive payroll tax and a high carbon tax.
These changes would dramatically improve incentives to work and save, make the rich pay their fair share and help save the climate – all while increasing revenues by 5 percent of GDP.