Fiscal Policy

As midterm elections approach, a volatile stock market and sluggish recovery have made many a politician long for the Clinton administration's economic policies. In 1993, the federal government imposed stiff tax increases to reduce budget deficits so interest rates would fall. Soon afterward, there was a boom. Today, the red ink is flowing again in the public sector, and there's talk of aborting the next phases of the Bush administration's tax cut to lighten government debt burdens, keep interest rates low and trigger another economic miracle.

Selected reviews of The Divided Welfare State are featured below:

Good morning, Mr. Chairman and members of the Committee. My name is Maya MacGuineas and I am a Senior Fellow at the New America Foundation, a nonpartisan think tank here in Washington, where I work on fiscal policy. Thank you for inviting me to testify today. It is a privilege to appear before the Committee.

If the U.S. economy is growing at anything like the 5.6% annual clip reported last quarter, why are U.S. stock markets sagging and economic confidence still shaky? Corporate accounting skulduggery and fear of terrorist attacks are commonly cited reasons. But the real problem is more fundamental: Nobody seems to know how the economy will generate new and sustained wealth. Currently, the most bureaucratic and least productive sectors--government, health-care, social and education services--are driving the economy, while entrepreneurial industries and manufacturing languish.

The Chastening is the first book to provide a behind-the-scenes look at the International Monetary Fund during an extraordinarily turbulent period in modern economic history. Based on interviews with more than 200 officials at the IMF, the World Bank, the U.S. Treasury, the Federal Reserve, the White House and many foreign governments, The Chastening recounts the struggle to stem the financial crisis that flared in Thailand in mid-1997 and spread to three continents.

For all the public debate about the strains that the retirement of the baby-boom generation will place on our Social Security and Medicare systems, surprisingly little debate has occurred about the looming crisis in caring for the elderly. After all, the huge number of baby-boomer retirees will require not only their monthly pension and Social Security checks, but also unprecedented amounts of time-consuming and expensive individual care in their final years.

David D. Hale is the Global Chief Economist for the Zurich Financial Services Group and its investment affiliates. In this position, he advises the group's domestic and global fund management operations on the economic outlook and a wide range of public policy issues. He joined the group following its acquisition of Kemper Corporation, where he had served as Chief Economist for many years. Mr. Hale also serves as Chairman of the Board of China Online, L.L.C., a service provider for business and economic news about China.

After September 11th, cash flowed into the coffers of assisting charities. But it has been gushing out of the federal treasury.

In the seven weeks after the attack, Congress has approved measures to bail out the airlines ($5 billion), aid the reconstruction of New York and the Pentagon ($20 billion), and to support increased homeland security and war-related efforts ($20 billion). Still to come are new investments in public health and security infrastructure, aid for the insurance industry, and a likely stimulus package. In all, the tab could run well over $150 billion.

With the immediate shock of the Sept. 11 attacks subsiding, restarting the stalled U.S. economy is a critical priority. Unfortunately, the stimulus package under consideration on Capitol Hill is simplistic, politically timid and incapable of fueling a sustained recovery. What's needed instead is an approach that builds consumer and investor confidence in the economy's long-term prospects. Toward that end, income and payroll taxes should be slashed by 10% to provide an immediate $170 billion boost to the economy.

Good morning members of the Commission. My name is Maya MacGuineas and I am a Fellow at the New America Foundation, a non-partisan think tank in Washington DC, where I work on fiscal policy. Thank you for the opportunity to testify before you today. I realize that most of the country's attention is focused on more immediate threats -- as is only appropriate. But it is important that at the same time, we take action to address the longer-term threats we know exist to our nation's retirement program. So I thank you for going forward with the important work of the Commission.