The role of economic and political resilience in fiscal reform

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Article Highlights

  • The foresight that Americans demonstrated during the recent Great Recession are encouraging signs of the resilience necessary to face future fiscal challenges.

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  • A key aspect of fiscal reform is a proper understanding of how workers and households will respond to changes in government policy.

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  • The two largest entitlement programs operated by the federal government, Social Security and Medicare, are on unsustainable paths.

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  • Lawmakers need to strengthen their political courage to reform unsustainable programs.

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The foresight that Americans demonstrated during the recent Great Recession and the ensuing recovery of household balance sheets are encouraging signs of the resilience necessary for U.S. households to face future fiscal challenges. And significant fiscal challenges are unquestionably on the horizon. While modest changes to U.S. tax and spending policy in 2011 and early 2013 mitigated near-term federal budgetary pressures modestly, long-run fiscal challenges remain as our entitlement programs and the federal debt are projected to outpace the overall growth of the U.S. economy.

A key aspect of fiscal reform, and entitlement reform specifically, is a proper understanding of how workers and households will respond to changes in government policy. A resilient and adaptive economy can better adjust to changes in federal programs and absorb the shock of even large-scale reforms. Conversely, a static, unresponsive household sector will endure more damage from rapid or significant fiscal consolidation.

The economic resilience of the American household makes for an inspiring story—and an important one given the role that resilience will play in righting our fiscal imbalance. While the resilience of the American household and the American worker is key to tackling our entitlement problems and the fiscal challenges that lie ahead for our country, our elected officials also must demonstrate political resilience. While many American households have responded and will continue to respond wisely to recent economic adversity by preparing for a more uncertain economic future, lawmakers need to strengthen their political courage to reform unsustainable programs, primarily Medicare and Social Security. The good news is that our leaders can both draw on the public’s resilience for inspiration and rely on their resilience in the face of necessary policy changes.

Click here to read the entire paper on the US Chamber of Commerce Foundation website (PDF version available here).

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About the Author

 

Alex
Brill
  • Alex Brill is a research fellow at the American Enterprise Institute (AEI), where he studies the impact of tax policy on the US economy as well as the fiscal, economic, and political consequences of tax, budget, health care, retirement security, and trade policies. He also works on health care reform, pharmaceutical spending and drug innovation, and unemployment insurance reform. Brill is the author of a pro-growth proposal to reduce the corporate tax rate to 25 percent, and “The Real Tax Burden: More than Dollars and Cents” (2011), coauthored with Alan D. Viard. He has testified numerous times before Congress on tax policy, labor markets and unemployment insurance, Social Security reform, fiscal stimulus, the manufacturing sector, and biologic drug competition.

    Before joining AEI, Brill served as the policy director and chief economist of the House Ways and Means Committee. Previously, he served on the staff of the White House Council of Economic Advisers. He has also served on the staff of the President's Fiscal Commission (Simpson-Bowles) and the Republican Platform Committee (2008).

    Brill has an M.A. in mathematical finance from Boston University and a B.A. in economics from Tufts University.

  • Phone: 202-862-5931
    Email: alex.brill@aei.org
  • Assistant Info

    Name: Brittany Pineros
    Phone: 202-862-5926
    Email: brittany.pineros@aei.org

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