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THE CONCORD COALITION

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Toward a Fiscally Responsible Economic Growth Agenda

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Background to Debt Discussion

Kent Smetters \ October 3, 2019

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Talking Points

• 1. Debt still matters
• Demographics and globalization has lowered cost
• f borrowing per dollar.
• Total borrowing has already increased.
• 2. Measure debt holistically
• Traditional debt measure misses young-to-old

transfers (implicit debt)

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Favorable Rates

Year Expected Real Corporate Return (Re) Expected Real Gov’t Borrow Rate (Rf) 2020 5.39%

• 0.23%

2021 5.37%

• 0.01%

2022 5.15% 0.17% 2023 5.25% 0.39% 2024 5.43% 0.55% 2025 5.58% 0.69%

• 2030

5.58% 1.06%

• 2035

5.86% 1.17%

• 2040

6.10% 1.21%

Definitions:

• Re: Real (after-inflation) after-tax corporate equity return,

before household taxes.

• Rf: Real (after-inflation) duration-weighted risk-free rate.

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Change in Debt-GDP ratio, baseline and policy change

Experiments: hold debt- GDP ratio at 2019 level on a conventional basis:

• Linear income tax

increase.

• Cuts in non-entitlement

and “non-productive” spending. Differences in debt-GDP ratios then emerge on a dynamic basis since each experiment has a different impact on GDP.

50% 75% 100% 125% 150% 175% 200% 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050

Debt-GDP ratio

Baseline Tax increase, dynamic Spending cut, dynamic

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Tax Changes Required for Stabilizing Debt-GDP Ratio

• 8%
• 7%
• 6%
• 5%
• 4%
• 3%
• 2%
• 1%

0% 0-20% 20-40% 40-60% 60-80% 80-90% 90-99% Top 1% 0-20% 20-40% 40-60% 60-80% 80-90% 90-99% Top 1% 0-20% 20-40% 40-60% 60-80% 80-90% 90-99% Top 1% 2020 2030 2040

After tax income, percent change

Tax rate changes Year Change 2018-2019 Current law 2020-2025 Current law rates + 7pp’s 2025-2034 Current law rates + 9 pp’s 2035-2050 Current law rates + 8 pp’s

Note: “pp’s” means “percentage points”

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Changes in Key Indicators

2030 2040 2050 Economics (% change from baseline) Increase taxes on ordinary income Output

• 0.4%

0.7% 2.7%

Capital

2.0% 3.7% 9.0%

Labor input

• 1.5%
• 0.8%
• 0.4%

Reduce government spending Output

1.1% 3.1% 6.1%

Capital

3.5% 8.8% 17.7%

Labor input

0.0% 0.2% 0.6%

Debt-GDP ratios Baseline

117% 155% 190%

Increase taxes on ordinary income

83% 83% 79%

Reduce government spending

81% 80% 74%

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$

Social Security

$

US Treasury

$ $

Counted as official debt. Not counted.

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Example: “Social Security 2100 Act”

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“Social Security 2100 Act” (September, 2019 PWBM Update)

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Relative to debt financing of Social Security shortfalls, many reforms (payroll tax increase, benefit cuts, or some combination) increases capital services and GDP. Larson Bill actually reduces capital and GDP. Why? (i) it eliminates explicit debt by increasing pay-as-you-go

• bligations (implicit debt) by even more; (ii) donut hold tax largely

delinks tax from benefits, increasing effective MTR on labor.

“Social Security 2100 Act” (September, 2019 PWBM Update)

CRFB.org

CRFB.org

We Need to Save Social Security Soon

Source: 2019 Social Security Trustees’ report. 0% 50% 100% 150% 200% 250% 300% 350% 400% 450% 1990 2000 2010 2020 2030 2040 2050

Combined Trust Funds

Percent of Benefits

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Trust Fund Depletion, 21% Benefit Cut in 2035

CRFB.org

If You are 62 Today…

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CRFB.org

If You are 50 Today…

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CRFB.org

If You are 22 Today…

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CRFB.org

If You are 2 Years Old Today…

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CRFB.org

Saving Social Security Can Grow the Economy

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Sources: Authors’ estimates, CBO, JCT, U.S. International Trade Commission, and Penn Wharton Budget Model.

8% 4.5% 1% 1% 0.25% 0.25% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% Pro-Growth Social Security Reform 2013 Immigration Bill Natural Gas "Fracking" 2017 Tax Law (TCJA) Ending the Trade War and Passing TPP $2 Trillion Infrastructure Investment

Ultimate GNP Impact

CRFB.org

$2,200 $4,600 $7,800 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050

Saving Social Security Could Boost Income by $8,000 Per Person

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Source: Authors’ calculations based on CBO data.

Additional GNP Per Capita in 2019 Dollars

CRFB.org

Saving Social Security Can Grow the Economy

1. Promote Delayed Retirement and Productive Aging

by increasing Social Security’s retirement ages while insulating vulnerable workers with an Age 62 Poverty Protection Benefit (62-PPB)

2. Reward Work at All Ages

by counting all years of work toward benefits based on each year’s earnings rather than average 35-year lifetime earnings (“mini-PIA”)

3. Increase Savings and Investment

by automatically enrolling workers in add-on “Supplemental Retirement Accounts” (SRAs) unless a worker opts out

4. Reduce Debt and Improve Certainty

by making Social Security sustainably solvent through a mix of progressive revenue and benefit adjustments

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CRFB.org

Rethink Retirement to Improve Wealth, Health, Happiness, and Economic Growth

Retirement Career

Encore Career

The Old Model – One-Size-Fits-All and Binary The New Model – Multiple Options and Paths

Phased Retirement Continue working

Career

Bridge Job Delayed Retirement

Retirement

Part-Time Consulting

Early Retirement: Permanently Reduced Income Early Retirement: Poverty-Protected Income

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Reward ALL Years of Work Equally

CRFB.org

Increase Savings to Boost Investment

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Source: FRED.

• 4%
• 2%

0% 2% 4% 6% 8% 10% 12% 14%

1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Percent of Gross National Income

Net Savings Net Domestic Investment

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160% 135% 115% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% 160% 2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050 Current Law With Social Security Reform Assuming Pro-Growth Effects

Restore Solvency to Reduce Debt and Uncertainty

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Source: Authors’ calculations based on CBO and SSA data.

Debt Held by the Public as a Percent of GDP

BUILDING A PRO-GROWTH LEGAL IMMIGRATION SYSTEM

Ja Jacq cqueline Vara ras

October 3, 2019

AMERICAN ACTION FORUM

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AMERICAN ACTION FORUM

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VISA GRANTING SYSTEM

To qualify for permanent legal status, applicants must have 70 points or more.

AMERICAN ACTION FORUM

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AMERICAN ACTION FORUM

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@ITIFdc Boosting Federal R&D to Drive Productivity and GDP Growth

• Dr. Robert D. Atkinson

President, ITIF October 3, 2019

@RobAtkinsonITIF

About ITIF

§ One of the world’s top science and tech think tanks § Formulates and promotes policy solutions that accelerate innovation and boost

productivity to spur growth, opportunity, and progress

§ Focuses on a host of issues at the intersection of technology innovation and public

policy: – Innovation processes, policy, and metrics – Science policy related to economic growth – E-commerce, e-government, e-voting, e-health – IT and economic productivity – Innovation and trade policy

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U.S. Economic Growth from Different Productivity Rates

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Source: Why Federal R&D Policy Needs to Prioritize Productivity to Drive Growth and Reduce the Debt-to-GDP Ratio, ITIF 2019

The U.S. is in a Deep Productivity Rut

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3.24% 1.54% 2.71% 1.34% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 1947-1973 1973-1995 1995-2008 2008-2018

R&D and Innovation Are Key

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Thank You!

Robert D. Atkinson | ratkinson@itif.org | @RobAtkinsonITIF

@ITIFdc

Training for Jobs of the Future: Increasing Access, Certifying Skills, Expanding Apprenticeship

Robert I. Lerman, Pamela Loprest and Daniel Kuehn Urban Institute Prepared for the Concord Coalition Project

• n Fiscally Responsible Growth , October 2019

Incremental approaches within existing structures

Improving access to quality training through: Better Information, such as an app with local labor market information, signaling quality through gainful employment regulations, and making credentials transparent Through online technology , using sites such as Southern New Hampshire University’s College for America; Ensuring quality is critical; research suggests online education is lower quality Through changes in funding sources Expansion of public funding for training, including making Pell grants available to short-term training programs, Lifelong learning accounts, increasing WIOA and TAA funding

Certifying skills vs. academic credentials

Verified resumes document skills verified by prior employer or educators, shows what tasks workers have performed well Competency-based measures of skill rather than seat time

Increasing registered apprenticeship, including Urban Institute competency based occupational frameworks. Pioneered in higher education by Western Governors University and Southern New Hampshire University

Develop and validate stackable skills-oriented credentials

Stackable credentials built around career pathways Micro-credentials and badges

Major initiative to expand apprenticeship

Incorporates improved access via information, funding, and verifying skills Renewed interest at the federal and state levels; increased recognition of the value of apprenticeships and potential for growth in many countries. Presidents, Governors, and the Congress are all supporting expansion of apprenticeship

Why Apprenticeship?

Apprenticeship is a cost-effective mode of learning;

• paid jobs with structured work-based learning under a

qualified mentor,

• related theoretical instruction (classes), yielding

competence and certification in an occupation,

• apprentices contribute to production, allowing firms

to recoup their investments during training

• widens routes to rewarding careers; emphasizes

learning by doing with some academic learning

For employers, apprenticeships:

Reduce skill mismatches, turnover, recruitment costs; Increase certainty that all workers have appropriate skills; Insures transmission of implicit skills of older workers; Employer-led training tends to raise innovation

For workers, apprenticeships

Avoid the costs of higher education and related debt; Provide income during the learning process; Yields high returns Offer a sense of pride, part of a community of practice

For government, apprenticeships

Lower the costs of subsidizing higher education Provide an effective tool to reduce inequality productively

Four Specific Recommendations

• 1. Create an apprenticeship brand, not industry-

recognized nor registered—e,g, “modern” “US”

• 2. Establish and Fund a Public/Private Entity to

Develop and Maintain Apprenticeship Occupational Frameworks

• 3. Fund Selling and Organizing of Apprenticeships

by using a pay for performance approach

• 4. Use existing public funds for training/career

education to pay for related instruction

What Success Can Mean

Reduced government costs of skill development A society with less income inequality, more mobility, and less need for government social transfers A country with more workers achieving occupational mastery, pride, and identity An improved business climate/higher productivity

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