Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Retirement Planning > Saving for Retirement

CBO Chief Warns Deficit Committee: Tax Policy on Road to Ruin

Your article was successfully shared with the contacts you provided.

Congressional Budget Office Director Douglas Elmendorf on Tuesday spoke before the congressional super committee on deficit reduction, testifying that the U.S. economy will not be able to sustain its current level of spending with the tax cuts now in place as the population ages and health-care costs grow.

A day earlier a coalition of business leaders and former government officials wrote the heads of the super committee urging them to reach a compromise.

Citing the “arithmetic” of his case, Elmendorf told the bipartisan Joint Select Committee on Deficit Reduction, more commonly known as the “super committee,” that putting the federal budget on a sustainable path will require “significant changes” in spending policies, tax policies or both.

“If current policies are continued in coming years, the aging of the population and the rising cost of health care will boost federal spending, as a share of the economy, well above the amount of revenues that the federal government has collected in the past,” said Elmendorf at a public hearing on the history and drivers of the U.S. debt.

Elmendorf added that the task of addressing those “formidable challenges” is complicated by the weakness of the economy and the large numbers of unemployed workers, empty houses and underused factories and offices. “Changes that might be made to federal spending or tax policies could have a substantial impact on the pace of economic recovery during the next few years as well as on the nation’s output and people’s income over the longer term,” Elmendorf said in prepared testimony.

In the aftermath of a politically divided debt-ceiling debate that led to Standard & Poor’s downgrade of U.S. debt, the super committee was formed in August specifically as a bipartisan group. The committee is charged with developing legislation by Thanksgiving that provides $1.5 trillion in deficit reduction over the next 10 years.

On Monday, a diverse group of more than 60 business leaders and former government officials from the Committee for a Responsible Federal Budget sent a letter to super committee co-chairmen Jeb Hensarling and Patty Murray, urging them to “go big” and develop a large-scale debt reduction package that will stabilize the debt as a share of the economy.

The group did not specify in its letter whether taxes should be raised or spending cut. Rather, it urged the super committee to reach a compromise.

“While we have differences of opinion about the specific policies that should be included in any plan, we all agree that a large-scale, multi-year debt stabilization package is necessary to deal with the fiscal challenges facing the nation,” the letter states.

As the committee’s Republicans and Democrats attempt to cut the deficit, individuals and lobbying groups also are rallying in response to the panel’s call for comments.

The Insured Retirement Institute (IRI), for example, urged the super committee to spare middle-class Americans’ retirement savings.

“While the committee is going to have to make a number of hard decisions, we do not believe that deficit reduction should be done at the cost of individual retirement savings,” said IRI President and CEO Cathy Weatherford in a statement. “Consumers are being asked to shoulder the financial responsibilities of their retirement. As the panel considers deficit reduction options, we urge committee members to protect savings incentives for all American workers.”

IRI cited research by the Employee Benefits Research Institute, showing that half of all workers are not confident of having enough money to live comfortably throughout their retirement years, with 46% of all workers reporting that they have less than $10,000 in savings.

“As a result, in the absence of tax deferral, hard-working middle income Americans would be faced with potentially burdensome restrictions to access insured retirement solutions,” the IRI said in a news release.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.