In an op-ed published by The Washington Post on Sunday, Federal Reserve chair Janet Yellen joined four other authors in pointing to tax cuts and unfunded wars as the major culprits in America’s budget woes.
The column was written in response to a recent piece by senior fellows at the Hoover Institution, which warned of a pending debt crisis and implored policymakers to “reform and restrain the growth of entitlement programs and adopt further pro-growth and regulatory policies.”
Major entitlement programs in the U.S. include Medicare, Medicaid, Social Security and veterans benefits.
The Hoover Institution economists acknowledged that tax policies alone will not fix the budget issues, insisting that “funding programs as they are currently structured will require high taxes for all income levels, taxes that would sharply reduce economic opportunity and growth, which in turn will make funding entitlements that much harder.”
While agreeing that America is in a debt crisis and pointing to recent projections that the deficit is set to surpass $1 trillion next year, Yellen and her colleagues scrutinized the Hoover economists for calling the recent U.S. tax cuts a “good first step.”
Instead, the economists from The Fed pointed to the social benefits of maintaining entitlement benefits, and named their article: “A debt crisis is coming. But don’t blame entitlements.”
Yellen and her co-authors argued: “Entitlement programs support older Americans and those with low incomes or disabilities. Program costs are growing largely because of the aging of the population. This demographic problem is faced by almost all advanced economies and cannot be solved by a vague call to cut ‘entitlements’ — terminology that dehumanizes the value of these programs to millions of Americans.”
On Monday, a Congressional Budget Office official told CNBC that while the GOP’s recent tax cuts will provide the economy with a boost in the short term, federal debt is now projected to rise even higher without budget cuts.
CBO director Keith Hall said, “Such high and rising debt would have serious consequences for the budget and the nation. The timing of this is really concerning because we’re not coming out of a recession. We’re quite a few years out of a recession, and we have very high deficits.”
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told CNBC: “We now are facing trillion-dollar deficits as far as the eye can see — a terrible path, made even worse by the fact that this comes amidst a strong economy and is the self-inflicted result of irresponsible policy choices. Hopefully, it will serve as a wake-up call for our political leaders who have become frighteningly comfortable with deficit denial.”