Shocking Truth: US Debt Crisis and How Tax Changes Could Make It Worse

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Note: “The Sustainability of U.S. Debt and Potential Reforms: Fiscal Rules, Spending and Taxes, and a Fiscal Commission,” which has been published in final form in Public Budgeting & Finance at https://doi.org/10.1111/pbaf.12381. This article may be used for non-commercial purposes in accordance with the Wiley Self-Archiving Policy (http://www.wileyauthors.com/self-archiving).

Abstract
In this study, we assess current projections of U.S. deficits and debt, establishing the recent history, causes, and consequences of the growing fiscal gap. We review the fiscal consolidation literature, indicating successful debt reductions primarily focus on spending reforms. In the U.S. context, we assess options to reform the budget process and ways to reform major spending programs and taxes. In simulating four potential changes in U.S. taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
policy, we find that although they would substantially alter tax revenues as conventionally measured, they would also have substantial effects on the economy over the long run that tend to diminish the impacts on the debt burden, leaving the debt-to-GDP ratio on an unsustainable course.
Introduction
At the time of this writing, the federal government’s debt exceeds $34 trillion and is rising rapidly.(1) Last year, after a protracted negotiation and just days before the federal government was expected to become unable to pay its obligations, President Biden and then-House Speaker McCarthy reached a deal to suspend the debt ceiling until January 1, 2025, as part of the Fiscal Responsibility Act (FRA) of 2023.(2) The deal imposed temporary caps on the discretionary budget, reducing projected deficits by about $1.5 trillion over the next decade.(3) However, even after the FRA and under a current law projection that includes expiration of major portions of the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025, the Congressional Budget Office (CBO) projects deficits will total more than $20 trillion from 2025 to 2034, with annual deficits growing from $1.5 trillion in 2024 to $2.6 trillion in 2034.(4)
In CBO’s current law projection, deficits remain at 5 percent of GDP or higher throughout the next decade, the largest sustained budget gap in records going back to 1930.(5) The chronic deficits are partly due to rising interest on the debt, which is set to exceed defense spending this year for the first time ever and grow to a record high of 3.2 percent of GDP next year before rising higher to 3.9 percent in 2034. Debt held by the public is projected to rise steadily from 99 percent of GDP this year to 106.3 percent in 2028, exceeding the high set at the end of World War II, and then escalate to 116 percent in 2034 and 166 percent in 2054.(6)
Such projections and concerns about the sustainability of the federal debt led Fitch Ratings to downgrade U.S. debt from AAA to AA+ on August 1, 2023, noting “expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”(7) Fitch expects the deficit to reach 6.3 percent of GDP this year and rise from there due to weak economic growth and an interest burden that will grow to 10 percent of revenue by 2025. For similar reasons, on November 10, 2023, Moody’s Investors Service lowered its outlook on the U.S. credit rating from “stable” to “negative,” signaling an increased risk of a downgrade over the next two years.(8) Standard & Poor’s had already downgraded U.S. debt in 2011 due to concerns about rising debt in the aftermath of the financial crisis and political brinksmanship around negotiations to lift the debt ceiling.
In this study, we first look at the causes and consequences of the rising national debt, putting it into context historically and internationally. Next, we review the fiscal consolidation literature, revealing lessons that can be learned from dozens of episodes in recent decades around the world. We then turn to options for reform in the U.S., including changes to the budget process, spending programs, and taxes. In our tax analysis, we simulate four potential tax changes that would substantially alter tax revenues and estimate the impacts on the economy and the debt-to-GDP ratio over the long run.
Causes and Consequences of the Rising Debt
According to the International Monetary Fund’s (IMF) measure of central government debt, the U.S. federal government is among the most indebted governments in the world.(9) As of 2022 (the latest available data), federal debt reached 110 percent of GDP, ranking 18th highest out of 161 countries for which the IMF has data. Japan tops the ranking with central government debt of 214 percent of GDP, followed by Greece, Eritrea, Italy, and Singapore. Not long ago, the U.S. was among the least indebted countries. In 2001, U.S. federal debt was 41 percent of GDP, lower than debt levels found in 99 other countries.
U.S. debt surged upward in two stages over the last 20 years, first after the financial crisis in 2008 and then after the COVID-19 pandemic(10) that began in 2020. The economy contracted—and tax revenues along with it—while the federal government enacted large stimulus packages.(11) Publicly held debt as a share of GDP roughly doubled following the financial crisis, from 35 percent in 2007 to 70 percent in 2012. During the pandemic, publicly held debt jumped from 79 percent of GDP in 2019 to 99 percent in 2020 before falling to about 97 percent in 2023.(12) The recent downtick was primarily due to a surge in inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.
as well as real economic growth coming out of the pandemic, factors that temporarily reduced debt burdens in many countries.(13)
The rise in the debt and negotiations around lifting the debt ceiling led lawmakers to enact the Fiscal Responsibility Act in June 2023, limiting most discretionary spending to about $1.6 trillion in fiscal year (FY) 2024 and FY 2025. The FRA caps defense spending at $886 billion in FY 2024 and $895 billion in FY 2025 and non-defense discretionary spending at $704 billion in FY 2024 and $711 billion in FY 2025. The deal also contains a mechanism to enforce a better budget process by further reducing the budget caps by 1 percent if Congress fails to enact all 12 appropriations bills, which Congress avoided for FY 2024 by approving the appropriations bills about halfway through the fiscal year. Additionally, the deal specifies certain unenforceable spending limits beyond FY 2025. As noted, at the time of its enactment, the CBO estimated the FRA would reduce deficits by $1.5 trillion from 2023 to 2033.(14)
The FRA has effectively contained the short-run growth of discretionary spending, but the bigger challenge remains how to address the larger and faster growing part of the budget, which is mandatory spending, including major entitlement programs such as Social Security and Medicare.(15) Mandatory spending in FY 2023 was 61 percent of the federal budget and is set to grow to 63 percent of the budget by FY 2034, while discretionary spending was 28 percent of the budget in FY 2023 and is projected to decrease to 21 percent of the budget by FY 2034.(16) The remainder of the budget is net interest on the debt, which is set to grow from 11 percent of the budget in FY 2023 to 16 percent in FY 2034.
Growth in mandatory spending is a long running challenge, as it generally falls outside the annual appropriations process and for the most part continues on autopilot based on benefit formulas and policy parameters set long ago. The old-age programs of Social Security and Medicare, which currently represent about 65 percent of mandatory spending, have grown and are projected to continue to grow along with the aging of the population and the rising cost of benefits. Mandatory spending has grown from less than 5 percent of GDP in the mid-1960s, prior to the launch of Medicare and other Great Society programs, to 13.9 percent in 2023 and is projected to grow to 15.2 percent in 2034 and 16.2 percent in 2054.(17)
Meanwhile, discretionary spending has shrunk from about 12 percent of GDP in the mid-1960s to 6.4 percent in 2023 and is projected to continue falling to 5.1 in 2034 and 4.9 percent in 2054. Interest on the debt, which has ranged from 1.2 percent to 3.2 percent of GDP over the last 60 years, is set to grow to 3.9 percent in 2034 and 6.3 percent in 2054, eclipsing the entire discretionary budget.
As a result of projected growth in mandatory spending and interest on the debt, federal spending in total is projected to rise from 22.7 percent of GDP in 2023 to 24.1 percent in 2034 and 27.3 percent in 2054, far exceeding the average level over the last 60 years of 20.6 percent. Meanwhile, revenues have been volatile in recent years, due in part to fluctuations in the economy and the stock market, but have averaged about 17 percent of GDP since the TCJA, somewhat less than the 17.4 percent average level from 1962 to 2017. Under a current law projection that assumes expiration of much of the TCJA at the end of 2025, CBO projects revenues will rise steadily to 17.9 percent of GDP in 2034 and 18.8 percent in 2054.
CBO estimates that TCJA expiration would increase revenues by about 0.7 percent of GDP over the long run, and that most of the projected growth in revenues is from real bracket creepBracket creep occurs when inflation pushes taxpayers into higher income tax brackets or reduces the value of credits, deductions, and exemptions. Bracket creep results in an increase in income taxes without an increase in real income. Many tax provisions—both at the federal and state level—are adjusted for inflation.
as incomes rise faster than prices. In sum, while revenues are projected to remain above the historical average and grow, they will remain substantially below spending levels and grow at a slower rate, leaving deficits that grow from about 5.6 percent of GDP in 2024 to 6.1 percent in 2034 and 8.5 percent in 2054.(18)
Modeling by Mark Warshawsky and other researchers at the American Enterprise Institute (AEI) see rising health-care costs and interest rates contributing to even higher deficits and debt.(19) Assuming current policy continues, they forecast deficits will exceed 7 percent of GDP within the next decade and debt held by the public will grow to 135 percent of GDP in 2032 and 268 percent in 2052. Like the CBO forecast, theirs assumes no banking crisis, war, pandemic, or other emergency that might cause a major economic downturn and spike in deficits.
All of this may seem far off, but the costs of high debt levels are upon us now. They are most clearly visible in the form of high inflation, high interest rates, financial stress, and the risk of an economic downturn.(20) As John Cochrane,(21) Eric Leeper,(22) Tom Sargent,(23) and other economists(24) have described, the extraordinary surge of federal spending during the pandemic—exceeding $5 trillion through early 2021, or 27 percent of GDP—kicked off a 40-year high in inflation.(25)
That is because the increased spending was not financed by tax increases; it was financed by debt purchased by the Federal Reserve through money creation.(26) To combat high inflation, the Federal Reserve has raised interest rates to the highest levels in more than 20 years. That brute force method of slowing the economy through higher borrowing costs has thus far led to heavy losses for some investors, a collapse in home sales, and several bank failures, among other signs of distress, with potentially more damage ahead as debt of various types is rolled over at higher interest rates.(27)
High interest rates are also putting pressure on the federal budget, as discussed above, causing interest payments on the debt to crowd out other federal priorities and limiting the federal government’s ability to respond to future crises.(28) John Cochrane argues we have already “lost our fiscal capacity to react to shocks. If the $5 trillion pandemic response was more debt than people will hold and caused inflation, the $10 trillion response to the next crisis will face even more trouble.”(29)
The financial stress and instability of high interest rates are spreading around the globe, putting pressure on governments and citizens alike and making the world economy more susceptible to major disruptions.(30) These and other concerns have led the IMF(31) to recommend fiscal restraint as a less economically damaging way to reduce inflation and debt.(32)
How Other Countries Successfully Reduced Debt and Deficits
As U.S. lawmakers consider options to address the underlying gap between spending and revenue going forward, they should draw on international experiences of fiscal consolidation.(33) International experience cautions against tax-based fiscal consolidations, but modest tax increases may be part of a successful debt reduction package.(34) Overall, a rough guideline that emerges is that deficit reduction efforts should primarily be focused on spending reduction, with 60 percent or more of a plan’s savings coming from spending cuts and 40 percent or less from revenue increases. Further, the types of spending cuts and tax reforms that are part of a fiscal consolidation also matter.
In a survey of studies on the experience of countries around the world dealing with fiscal deficits and debt, the IMF outlines factors that contribute to sustained improvements in deficits and debt-to-GDP levels.(35) Reductions in social spending, as opposed to public investment, tend to produce more lasting fiscal improvements, as do less distortionary tax increases—including higher consumption, property, excise, and environmental taxes as well as reductions in tax expenditures.
Other factors important for success include the public’s perception that the government will actually fulfill its commitments and that the adjustment will be gradual, not “front-loaded” with large structural policy changes.
Additional research further supports the idea that fiscal consolidations based on spending cuts have had fewer negative effects on GDP than tax increases. Looking at 16 OECD countries over a 30-year period, Alberto Alesina and his coauthors found that, on average, spending cuts were associated with mild recessions and in some cases no downturns at all, while almost all fiscal reforms based on tax increases were followed by “prolonged and deep recessions.”(36) Fiscal adjustments based on tax increases reduced investment and business confidence. By contrast, business confidence rebounded almost immediately after a fiscal adjustment based on spending reforms.
In a follow-up paper, Alesina and his coauthors showed that cuts in transfer spending had milder negative effects on economic growth, nearing zero, compared to cuts in government consumption and investment, though both have relatively little impact on growth compared to tax increases.(37)
Examining fiscal adjustments from a sample of 26 countries from 1995 to 2018, a Mercatus Center analysis found that successful consolidations, defined as one where the debt-to-GDP ratio declines by at least 5 percentage points in the three years after the plan is implemented, were more spending-focused than tax-focused.(38) More than half (53 percent) of expenditure-based fiscal consolidations, defined as those in which spending cuts represent 60 percent or more of deficit reduction, were successful. In contrast, only 38 percent of tax-based fiscal consolidations (defined as those in which tax increases represent 60 percent or more of deficit reduction) were successful. Balanced fiscal consolidations, however, had the highest success rate at 55 percent. Among the successful fiscal consolidations, on average, 60 percent of the deficit reduction came from spending cuts, whereas among the unsuccessful fiscal consolidations, 74 percent of the deficit reduction came from tax increases.
A European Central Bank analysis arrived at a similar conclusion: EU countries that pursued spending-based consolidations had higher growth rates five years following a fiscal consolidation announcement than those that pursued tax-based ones.(39) While part of the difference in economic performance can be explained by better follow-through for revenue-based plans, the bulk of the difference was due to the composition of consolidations, with revenue having large, negative effects compared to nearly zero for spending.
It also matters what type of taxes are raised, as some tax increases are more economically damaging than others, leading to a smaller economy and less revenue raised from other taxes. As such, tax increases that substantially slow economic growth may prove counterproductive, reducing the likelihood of successful debt stabilization.
In a study of 17 OECD countries over a 30-year period, Norman Gemmell and other economists showed that reducing deficits by raising distortionary taxes, such as income taxes, consistently reduced economic growth, while raising less distortionary taxes, such as consumption taxes, was more growth-enhancing.(40) They found small positive growth effects from deficit-financed “productive” spending, such as infrastructure, implying that cutting such spending could hurt growth. Negative growth effects from cutting productive spending take longer to materialize, while negative effects of tax increases are more immediate. Deficit-financed “nonproductive” spending, such as transfers, was shown to have a negative effect on long-run economic growth, suggesting that cutting such spending would boost growth.
In all, the international experience with fiscal consolidations suggests adjustments should be gradual and focused on spending, with careful consideration of the growth effects of selected policies. If tax increases are included in a package,(41) it is most effective to focus on less distortionary taxes, such as consumption taxes, or tax reforms that rationalize tax expenditures(42) and broaden the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.
.(43)
Options for Reform
A Fiscal Commission and Other Reforms to the Budget Process
Several budget experts, including ourselves, and members of Congress have recommended a bipartisan fiscal commission as a way to grapple with the federal government’s long-term budgetary challenges, citing the need to overcome the short-term and parochial focus of our political system, engage and educate voters on real solutions, and bring to bear expert analysis on budgetary, economic, distributional, and other trade-offs.(44)
The Base Realignment and Closure Commission (BRAC), established in 1988 by an act of Congress to consolidate redundant defense bases, is seen as a successful model to follow, as it resulted in the closure of more than 100 bases and significant budgetary savings.(45)
The BRAC process involved an independent commission of experts providing analysis and recommendations based on a set of criteria, which was then subject to approval by the president and finally subject to disapproval by Congress. While the president approved the recommendations, many members of Congress objected, though they had insufficient numbers to pass the required joint resolution of disapproval. As a result, the recommendations were implemented.(46)
An alternative approach is the 2010 Simpson-Bowles Commission, which was set up by the Obama administration in response to growing concerns about deficits and debt in the aftermath of the financial crisis. Comprised of a bipartisan group of members of Congress, the Simpson-Bowles Commission produced a comprehensive set of recommendations to reduce spending and raise taxes but failed to reach the required supermajority consensus to approve those recommendations.
However, a simple majority of members approved of the recommendations, including far reaching and politically unpopular reforms to mandatory spending and taxes, owing to the commission’s leadership and structure that insulated members from political pressures and allowed them to focus on facts, build trust, and compromise.(47)
A key weakness of the Simpson-Bowles Commission was insufficient buy-in from members of Congress and the White House. Reviewing the history of fiscal commissions including Simpson-Bowles, Brian Riedl of the Manhattan Institute notes, “The single most crucial ingredient in a successful commission is complete buy-in from the leadership of both parties.”(48)
Now, with growing support in Congress, including from the current and past Speaker of the House, members of both the House and Senate have produced legislation to create another fiscal commission, borrowing elements from past efforts.(49) On January 18, 2024, the House Budget Committee approved on a bipartisan basis the Fiscal Commission Act of 2024 (FCA), which upon enactment (or within 60 days thereof) would establish a fiscal commission composed of 16 members, including 12 voting members of Congress and 4 non-voting outside experts: the Senate majority leader and minority leader would each appoint 3 members of the Senate and an outside expert, while the Speaker of the House and House minority leader would each appoint 3 House members and an outside expert.(50)
The FCA tasks the commission with educating the public, holding hearings, and identifying policies that reduce debt and deficits to achieve a “sustainable” debt-to-GDP ratio of not more than 100 percent by fiscal year 2039 and improve the solvency of federal trust fund programs (including Medicare and Social Security) over the next 75 years. The FCA specifies that by December 12, 2024, the commission will produce, vote on, and subsequently publish a report detailing findings and recommendations, including an analysis by the Congressional Budget Office and “to the extent practicable” a dynamic analysis that accounts for the economic and budgetary effects of the policies, as well as legislative language implementing the recommendations.
The report and legislative language are approved if a majority of commission members vote in favor, including two Republicans and two Democrats, in which case an implementing bill will be introduced and subject to a vote in the House and Senate on an expedited basis. The December 12, 2024, deadline may be extended to May 15, 2025, if approved by a majority of the commission, including two Republicans and two Democrats.
There is similar legislation in the Senate, the Fiscal Stability Act, introduced by Senators Romney (R-UT) and Manchin (D-WV) on November 8, 2023, and supported by several senators in both parties, indicating the growing potential for a statutory fiscal commission to pass both the House and Senate.(51) It remains to be seen if the White House would support such a measure.
As a longer-term process reform, some experts, including former Comptroller General of the United States Dave Walker and the late Nobel laureate economist James Buchanan, have also recommended a constitutional amendment to enforce fiscal sustainability.(52) The amendment could take many forms. Buchanan recommended an amendment that limits estimated spending to estimated tax revenues, with the ability to waive this requirement in extraordinary situations via separate approval by three-fourths of the House of Representatives and the Senate.(53)
Several countries have had success controlling debt through a similar constitutional rule. For instance, since 2003, Switzerland’s “debt brake,” which limits spending to revenues over the business cycle, has led to the stabilization of gross government debt at just over 40 percent of GDP.(54) As with a fiscal commission, the effectiveness of such an amendment depends on a wide consensus among the public and policymakers.(55) The Swiss debt brake, for example, was approved by 85 percent of its public. While this seems a remote possibility currently in the U.S., an amendment process could gain traction as the growing U.S. debt becomes more problematic.
Spending Reforms
Turning to reforms of particular spending programs, lawmakers should focus on controlling the growth of the largest mandatory spending programs, Social Security and Medicare. Together, the two programs will grow from 8.3 percent of GDP in 2024 to 10.1 percent of GDP in 2034, while the rest of the budget will shrink from 14.8 percent to 14.0 percent. Over the long run, growth in these two programs explains the entire primary deficit (the deficit excluding interest), implying that stabilizing them as a share of GDP would effectivity stabilize debt as a share of GDP.(56)
The demographic factors contributing to the growth of these old-age programs are not uniquely American, as populations are aging rapidly in several countries,(57) especially in Japan and across Europe. There too, pressure is rising on programs that promise benefits for an expanding pool of retirees financed by taxes on a shrinking pool of workers.(58) Eric Leeper describes this dynamic as creating a kind of “insidious” inflationary pressure, as the budgetary imbalance and associated risks grow somewhat imperceptibly over time and the looming policy uncertainty creates costly maneuvering.(59)
Social Security and traditional Medicare (Part A) are both funded by payroll taxes on a “pay-as-you-go basis.” That is, current payroll taxes paid by today’s workers fund payments to today’s retirees. Unlike discretionary spending, which must be voted on by Congress every year during the appropriations process, current law mandates Social Security and Medicare spending.
An aging U.S. population and a declining worker-per-retiree ratio (now only 3 to 1) have contributed to the cost of financing Social Security and Medicare. Under current law, Medicare’s Hospital Insurance Trust Fund and Social Security’s Old Age, Survivors, and Disability Insurance (OASDI) Trust Fund are projected to be insolvent within the next decade.(60) Without reforms, Social Security benefits would be automatically reduced across the board by 20 percent, and Medicare hospital insurance payments would be cut by 11 percent. Absent any reforms, the 2023 Trustees Report shows that a significant payroll tax hike of 4.2 percent would be required to close the current funding gap for OASDI and Medicare.(61)
Given the dire outlook, policymakers must reform the programs to ensure their long-run stability. A brief, non-exhaustive review of various proposals over the past decade to reform Social Security and Medicare illustrates the possibility of tackling the issue with a measured and bipartisan approach.
Social Security Reforms
The aforementioned Simpson-Bowles Commission of 2010 proposed significant changes to Social Security to ensure its fiscal sustainability.(62) Although the plan was never enacted, many of its recommendations can be found in other proposals, and for this reason it is worth reviewing in full.
Simpson-Bowles would have slowed benefit growth for high-income earners, making Social Security more progressive. Currently, benefits are calculated using a three-bracket system, where higher earners receive a lower share of their lifetime earnings than lower earners. The plan would have gradually phased in a four-bracket structure of replacement rates starting in 2017, reducing the share of lifetime benefits for higher earners even further.
Additionally, the plan would have gradually raised the retirement age. Under current law, the normal retirement age is 67, but retirees can begin collecting benefits as early as 62. Simpson-Bowles would have indexed both the normal and early retirement ages to life expectancy, making the normal retirement age 68 by 2050.
Currently, all Social Security benefits are adjusted for inflation using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The plan would have switched to chained CPI for cost-of-living adjustments (COLAs) instead. The standard CPI typically overstates inflation as it doesn’t account for consumers’ ability to switch to cheaper substitutes for goods, whereas the chained CPI better captures these consumption dynamics.(63) Switching to the chained CPI would slow benefit growth and therefore reduce the overall cost of the program.
On the revenue side, the plan would have gradually raised the payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue.
cap. Currently, wages and salaries above $160,200 do not face the payroll tax for Social Security.(64) As a result, the tax applies to about 83 percent of all wages earned. Simpson-Bowles would have raised the cap to ensure that 90 percent of all wages were covered by 2050.
Another more recent proposal by Senator Bill Cassidy (R-LA) would attempt to shore up Social Security by borrowing $1.5 trillion and placing it in a diversified investment fund that would be used to replenish the Social Security trust fund.(65) Cassidy characterizes the proposal as a bridge between President Bill Clinton’s proposal to invest part of the trust fund in stocks, and President George W. Bush’s proposal to partially privatize Social Security. However, the plan does not include private accounts, a key feature in successful pension reforms implemented in several countries,(66) including Sweden(67) and Australia.(68) Lawmakers should look to their experiences(69) for guidance on this promising direction for reform.(70)
Medicare Reforms
Currently, physicians who serve patients under traditional Medicare are reimbursed under a fee-for-service system, where they are compensated for the quantity of services they provide rather than the quality. This leads to physicians often providing unnecessary treatments or tests that do little to improve health outcomes for their patients, driving up the costs of Medicare. Proposals to reform fee-for-service have included switching to a system of bundled payments, where physicians are reimbursed based on a fixed price for specific medical episodes.(71) The Center for Medicare and Medicaid Services began experimenting with such a system(72) for hip and knee replacements in 2016, and announced further expansions for other types of care, but expanding it even more broadly could help keep costs down.(73)
Alternatively, reforms could go even further by switching to a system of capitation, where physicians are paid a set amount per patient, regardless of how much care is provided. Currently, Medicare Advantage (Medicare Part C) functions this way.(74) Under Medicare Advantage, recipients select among a variety of mostly managed care plans and private insurers receive a fixed payment through Medicare to cover the medical expenses. This incentivizes doctors to serve their patients in the most efficient way possible.
Other proposals call for simply increasing premiums. Premiums for Medicare Part B (which covers outpatient care) currently only cover about 25 percent of the program’s outlays.(75) The CBO estimated that increasing the basic premium to cover 35 percent of the outlays would reduce the deficit by $406 billion from 2023 to 2032.
Similarly, reforming cost sharing would reduce health-care overutilization and lower expenditures. Under the current system, Medicare patients face a high deductible when admitted to a hospital, but no cap on out-of-pocket expenses. As a result, 90 percent of patients acquire additional private coverage known as Medigap.(76) These plans are often expensive because the government is picking up the tab, and only a few plans are available, leading patients to consume more health care than necessary. The Committee for a Responsible Federal Budget (CRFB) offered a proposal that would implement an out-of-pocket cap and a higher deductible for non-hospital services, reducing the need to purchase additional coverage.(77)
One of the more ambitious plans to reform Medicare is to transition to a “premium support” model. Such a system was proposed by Senators Ron Wyden (D-OR) and Paul Ryan (R-WI) and the Bipartisan Policy Center (BPC) in 2011.(78) The Ryan-Wyden plan would have allowed traditional Medicare plans to compete with private insurance plans in a competitive bidding process, and then the government would have provided vouchers to seniors to purchase coverage.(79) The value of the vouchers would have grown at a rate of GDP plus one percent, and the expectation was that allowing private insurers to compete would help lower costs. To keep costs down even further, the BPC plan would have required Medicare beneficiaries earning above 150 percent of the poverty level to pay higher premiums if spending exceeded the growth limit.
Finally, numerous proposals have been offered to reduce the price of drugs purchased through Medicare. While some of these policies can actually harm innovation in the pharmaceutical sector (e.g., the Inflation Reduction Act’s price controls on specific drugs),(80) more modest reforms could encourage physicians to prescribe cheaper generics.(81) Under Medicare B, doctors purchase drugs for their patients and then get reimbursed based on the average sales price of the drug (net of all rebates and discounts), plus 6 percent of the drug cost. This incentivizes physicians to recommend more expensive, branded drugs since they will receive a larger reimbursement.
One proposed reform from the CRFB would implement “clinically comparable drug pricing,” where physicians would be reimbursed based on a weighted average sales price for clinically similar classes of drugs.(82) This would remove the incentive for physicians to recommend more expensive drugs, as they would incur all the additional costs of purchasing a drug above that weighted average sales price.
Tax Reforms
As discussed above, the experiences of countries around the world caution against raising particularly distortive taxes to reduce debt. However, modest tax increases with minimal harm to the economy can contribute to debt stabilization.
To illustrate, we use Tax Foundation’s Taxes and Growth model to simulate four potential tax changes, including three tax increases and one tax cut, that differ considerably in their effects on the U.S. economy and the federal debt burden. The model allows us to simulate detailed and complex changes to tax policy to estimate impacts on the economy, the distribution of the federal tax burden, and federal tax revenues measured both conventionally, i.e., assuming no change in economic aggregates, and dynamically, i.e., allowing the economy to adjust to the policy change over the long run. The model also generates a projection of debt-to-GDP under differing policy scenarios, which can be compared to CBO’s baseline projection under current law.(83)
The four simulated policy changes are as follows, all going into effect at the beginning of 2025 unless otherwise stated:

President Biden’s budget proposal to increase taxes on high earners, including raising the top marginal income tax rate to 39.6 percent, taxing capital gains over $1 million as ordinary income, taxing unrealized capital gains at death above a $5 million exemption, expanding the base of the net investment income tax (NIIT) to include active business income, increasing the tax rates for the NIIT and the additional Medicare tax to reach 5 percent on income above $400,000, limiting excess business losses and other miscellaneous tax increases on pass-through firms, limiting like-kind exchanges, taxing carried interest as ordinary income, limiting retirement accounts and other miscellaneous tax increases on saving, and tightening estate and gift taxA gift tax is a tax on the transfer of property by a living individual, without payment or a valuable exchange in return. The donor, not the recipient of the gift, is typically liable for the tax.
rules.(84)
A proposal from congressional Democrats called the Medicare and Social Security Fair Share Act, which would apply the 12.4 percent Social Security payroll tax to wages and self-employment income over $400,000, increase the additional Medicare tax from 0.9 percent to 2.1 percent on wage and self-employment earnings over $400,000, expand the base of the NIIT to include active business income, and raise the NIIT rate from 3.8 percent to 17.4 percent on income above $400,000.(85)
The broadening of the individual income tax base by eliminating the exclusion for employer-sponsored health insurance (ESI), which is the largest tax expenditureTax expenditures are a departure from the “normal” tax code that lower the tax burden of individuals or businesses, through an exemption, deduction, credit, or preferential rate. Expenditures can result in significant revenue losses to the government and include provisions such as the earned income tax credit (EITC), child tax credit (CTC), deduction for employer health-care contributions, and tax-advantaged savings plans.
in the tax code.(86)
The permanent extension of all the major expiring or expired provisions of the TCJA, beginning in 2026, including those that apply to individual and business income as well as estates.(87)

As shown in the table below, all four options would substantially alter federal tax revenue as well as the economy. Biden’s proposal to raise taxes on high earners would generate $1.3 trillion in additional revenue over the next decade conventionally measured, but on a dynamic basis, this falls to $755 billion as the economy shrinks by 1 percent in the long run in response to higher marginal tax rates on work, saving, and investment, especially via the NIIT and additional Medicare tax.(88) Despite such a large tax increase, the effect on the debt-to-GDP ratio is relatively small when accounting for economic impacts, reducing the ratio by 1.9 percentage points to 114 percent in 2034 and by 4.2 percentage points to 162 percent in 2054.
The Medicare and Social Security Fair Share Act is more ambitious, raising $3.4 trillion in revenue over the next decade conventionally measured, but this drops to $2.8 trillion after accounting for slower economic growth. Over the long run, GDP falls 1.3 percent, with about half the reduction due to the imposition of a 12.4 percent payroll tax on wages above $400,000.(89) Though it would shrink the economy, the proposal would reduce the debt-to-GDP ratio by 5.7 percentage points to 110 percent in 2034 and by 12.8 percentage points to 153 percent in 2054.
Eliminating the exclusion for ESI would substantially expand the income tax base, raising $3.2 trillion over the next decade on a conventional basis. It would also increase marginal tax rates on labor compensation, shrinking the labor force by about 1.1 million full-time equivalent jobs over the long run and reducing GDP by 0.9 percent.(90) This in turn reduces dynamic revenue gains to $2.5 trillion over the next decade. While it raises less revenue than the Medicare and Social Security Fair Share Act, it lowers the debt-to-GDP ratio by more because it is relatively less damaging to the economy: debt-to-GDP would fall by 6.3 percentage points to 110 percent in 2034 and by 13.6 percentage points to 153 percent in 2054.
All three of these revenue-raising options demonstrate that even with substantially higher tax revenues, debt-to-GDP would still continue to grow unsustainably—exceeding 150 percent of GDP by 2054 and escalating from there—demonstrating that spending needs to be the primary focus to successfully reduce debt.
The fourth option shows how revenue and the economy would perform if taxes are cut as a result of permanently extending the major expiring and expired provisions of the TCJA. This reform would reduce conventional revenue by $4.1 trillion over the next decade, which falls to $3.4 trillion after accounting for lower marginal tax rates that grow the economy by 1.1 percent over the long run.
Much of the economic growth comes from reducing ordinary income tax rates and widening brackets as well as allowing businesses to immediately expense investment in short-lived assets, which is offset to some extent by maintaining the cap on state and local tax deductions among other revenue raisers.(91) The reform would worsen the debt-to-GDP ratio, increasing it by 8.4 percentage points over the next decade to 124 percent and by 17.6 percentage points over the next 30 years to 184 percent.
Table 1. Impacts of Potential Tax Changes on Revenue, Economy, and Debt-to-GDP Relative to CBO Baseline

Source: Tax Foundation General Equilibrium Model, April 2024.

There are of course many other tax options available to lawmakers as they seek to address rising deficits and debt, including a thorough review of the roughly 200 tax expenditures in the tax code (e.g., various credits, deductions, and other special provisions) that reduce revenue by about $2 trillion annually. Ideally, such a base broadeningBase broadening is the expansion of the amount of economic activity subject to tax, usually by eliminating exemptions, exclusions, deductions, credits, and other preferences. Narrow tax bases are non-neutral, favoring one product or industry over another, and can undermine revenue stability.
exercise should be done with an eye toward not just raising revenue but boosting economic growth at the same time, for instance, by lowering marginal tax rates.
For example, Tax Foundation’s Tax Reform Plan for Growth and Opportunity would eliminate most tax expenditures in exchange for a broad-based flat taxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets.
at a much lower marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax.
, replace the current corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax.
with a distributed profits taxA distributed profits tax is a business-level tax levied on companies when they distribute profits to shareholders, including through dividends and net share repurchases (stock buybacks).
, and reform estate and capital gains taxes at death.(92) The plan is approximately revenue neutral in the long run, and it raises about $523 billion over the 10-year budget window conventionally measured. Because it raises revenue more efficiently, it increases long-run GDP by 2.5 percent, resulting in a further increase in revenue dynamically measured, a net of $1.4 trillion over a decade. The plan would reduce the long-run debt-to-GDP ratio by 9.2 percentage points, a far superior result than any of the options discussed above when considering the multiple benefits of stronger economic growth.
Conclusion
The dire condition and unsustainability of the U.S. government’s finances is evident from the latest forecast indicating perpetually rising deficits and debt that reach unprecedented levels over the next few years. This is happening despite the recent successful efforts by lawmakers to reduce discretionary spending in the form of the Fiscal Responsibility Act. The problem is that the largest and fastest growing part of the budget, mandatory spending, is essentially untouched by the FRA and largely off limits in the annual appropriations process. Given the poor state of the budget process and worsening debt trajectory, lawmakers should move boldly and quickly to address the issue, including via a fiscal commission process such as the one specified in recent legislation in the House and Senate.
Issues to consider in any fiscal commission should include reforms to both spending and taxes. Spending reforms will need to contain growth in mandatory spending, in particular Social Security and Medicare, which constitute a growing share of the budget and are the primary drivers of long-run deficits. The programs are unsustainable and are statutorily scheduled for a major reduction in benefits within the decade absent reforms.
Tax increases and tax reform should also be on the table. Lawmakers must keep in mind the potential long-run economic effects of various possible reforms, as the cumulative effects over time can substantially alter both standards of living as well as the sustainability of the debt reduction. Reforms that reduce tax expenditures and broaden the tax base, such as by eliminating the exclusion for employer-sponsored health insurance, generally are less economically damaging than raising further the top marginal tax rates on income. However, as demonstrated by our simulations, even large and politically unpopular tax increases will fail to put the debt trajectory on a sustainable course. Policymakers must therefore focus primarily on spending reforms in a fiscal consolidation package.
Appendix: Modeling Methodology
For over a decade, the Tax Foundation’s Center for Federal Tax Policy has developed and maintained a detailed and sophisticated model of federal taxes and the U.S. economy, called the Taxes and Growth model (TAG), allowing us to simulate the effects of federal tax policy changes on federal revenue, the distribution of the federal tax burden, and the economy.(93) The model is based on several sets of data including a large sample of anonymous individual tax returns provided by the Internal Revenue Service (IRS) called the Public Use File; detailed data from the IRS and Bureau of Economic Analysis (BEA) on corporate and pass-through businessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates.
income, fixed assets, and other balance sheet items that comprise the tax base for business taxes; projections of federal revenue from the Congressional Budget Office (CBO); and macroeconomic data from the BEA and the Bureau of Labor Statistics (BLS). We provide conventional revenue estimates over the standard 10-year budget window using similar data sources and methods used by the Joint Committee on Taxation (JCT), which provides official estimates (“scores”) of revenue effects of congressional legislative proposals. In addition to conventional (or “static”) revenue estimates, which keep macroeconomic aggregates fixed, we also provide dynamic revenue estimates that account for how tax policy changes affect the economy over the budget window and beyond. Our economic modeling is based on a standard neoclassical framework including a Cobb-Douglass production function in which the supply of capital and labor are driven by marginal tax rates and the user cost of capital over the long run.(94) While the supply of labor is assumed to adjust relatively quickly to changes in tax policy, the capital stock adjusts more slowly with about 84 percent of the adjustment occurring within 10 years and more than 99 percent within 30 years, in accordance with recent empirical research.(95)
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(1) Treasury Department, “Fiscal Data: Debt,” https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/.
(2) The debt limit, the nation’s debt, and the annual federal budget deficits are distinct but related issues. Annual budget deficits are the difference between how much revenue the nation brings in, primarily through taxes, and how much it spends. The nation’s debt reflects the accumulation of past budget deficits—spending promises that have already been made but not yet paid for. Congress limits the amount of debt that the Treasury can issue to pay obligations, and if it hits that limit, it must rely on cash balances and extraordinary measures to manage the debt in the interim until Congress suspends or raises the limit.
(3) Congressional Budget Office, “How the Fiscal Responsibility Act of 2023 Affects CBO’s Projections of Federal Debt,” Jun. 9, 2023, https://www.cbo.gov/publication/59235#:~:text=Summary,affect%20federal%20spending%20and%20revenues.
(4) Congressional Budget Office, “The Budget and Economic Outlook: 2024 to 2034,” Feb. 7, 2024, https://www.cbo.gov/publication/59710.
(5) Office of Management and Budget, “Historical Tables: Table 1.2 – Summary of Receipts, Outlays, and Surpluses or Deficits (-) as Percentages of GDP: 1930-2029,” https://www.whitehouse.gov/omb/budget/historical-tables/.
(6) Congressional Budget Office, “The Long-Term Budget Outlook: 2024 to 2034,” Mar. 20, 2024, https://www.cbo.gov/publication/59711.
(7) Fitch Ratings, “Fitch Downgrades the United States’ Long-Term Ratings to ‘AA+’ from ‘AAA’; Outlook Stable,” Aug. 1, 2023, https://www.fitchratings.com/research/sovereigns/fitch-downgrades-united-states-long-term-ratings-to-aa-from-aaa-outlook-stable-01-08-2023.
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(9) International Monetary Fund, “Central Government Debt,” 2022, https://www.imf.org/external/datamapper/CG_DEBT_GDP@GDD/USA.
(10) Alex Muresianu and William McBride, “Taxes, Fiscal Policy, and Inflation,” Tax Foundation, Jan. 24, 2022, https://taxfoundation.org/fiscal-policy-inflation-tax/.
(11) Alex Durante, “U.S. Fiscal Response to COVID-19 Among Largest of Industrialized Countries,” Tax Foundation, Jan. 4, 2022, https://taxfoundation.org/us-covid19-fiscal-response/.
(12) Congressional Budget Office, “The Budget and Economic Outlook: 2024 to 2034,” Feb. 7, 2024, https://www.cbo.gov/publication/59710; Congressional Budget Office, Historical Budget Data, https://www.cbo.gov/data/budget-economic-data#2.
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(14) Congressional Budget Office, “How the Fiscal Responsibility Act of 2023 Affects CBO’s Projections of Federal Debt,” Jun. 9, 2023, https://www.cbo.gov/publication/59235#:~:text=Summary,affect%20federal%20spending%20and%20revenues.
(15) Alex Durante, “Tackling America’s Debt and Deficit Crisis Requires Social Security and Medicare Reform,” Tax Foundation, May 23, 2023, https://taxfoundation.org/medicare-social-security-reform-us-debt-deficits/.
(16) Congressional Budget Office, “The Budget and Economic Outlook: 2024 to 2034,” Feb. 7, 2024, https://www.cbo.gov/publication/59710.
(17) Congressional Budget Office, “The Budget and Economic Outlook: 2024 to 2034,” Feb. 7, 2024, https://www.cbo.gov/publication/59710; Congressional Budget Office, “The Long-Term Budget Outlook: 2024 to 2034,” Mar. 20, 2024, https://www.cbo.gov/publication/59711; Congressional Budget Office, Historical Budget Data, https://www.cbo.gov/data/budget-economic-data#2.
(18) Ibid.
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(22) Eric Leeper, “Fiscal Dominance: How Worried Should We Be?,” Mercatus Center George Mason University, Apr. 3, 2023, https://www.mercatus.org/research/policy-briefs/fiscal-dominance-how-worried-should-we-be.
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(50) H.R. 5779 – Fiscal Commission Act of 2023, https://www.congress.gov/bill/118th-congress/house-bill/5779; Amendment in the Nature of A Substitute to H.R. 5579, https://docs.house.gov/meetings/BU/BU00/20240118/116753/BILLS-118-HR5779-A000375-Amdt-1.pdf.
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(71) Committee for a Responsible Federal Budget, “How to Reduce Medicare Spending Without Cutting Benefits,” May 17, 2017, https://www.crfb.org/blogs/how-reduce-medicare-spending-without-cutting-benefits .
(72) Rajender Agarwal, Joshua M. Liao, Ashutosh Gupta, and Amol S. Navathe, “The Impact Of Bundled Payment On Health Care Spending, Utilization, And Quality: A Systematic Review,” Health Affairs, January 2020, https://www.healthaffairs.org/doi/10.1377/hlthaff.2019.00784#:~:text=The%20Centers%20for%20Medicare%20and%20Medicaid%20Services%20%28CMS%29,of%20care%20delivered%20during%20an%20episode%20of%20care.
(73) Centers for Medicare & Medicaid Services, “BPCI Advanced,” https://innovation.cms.gov/innovation-models/bpci-advanced.
(74) Medicare.org, “How Does Medicare Advantage Reimbursement Work?” https://www.medicare.org/articles/how-does-medicare-advantage-reimbursement-work/#:~:text=As%20a%20beneficiary%20of%20a%20Medicare%20Advantage%20plan%2C,insurance%20company%20is%20responsible%20for%20covering%20that%20difference..
(75) Congressional Budget Office, “Increase the Premiums Paid for Medicare Part B,” Dec. 7, 2022, https://www.cbo.gov/budget-options/58625.
(76) Committee for a Responsible Federal Budget, “The Benefits of Medicare Benefit Redesign,” Feb. 25, 2015, https://www.crfb.org/blogs/benefits-medicare-benefit-redesign.
(77) Ibid.
(78) Bipartisan Policy Center, “Domenici-Rivlin Protect Medicare Act,” Nov. 1, 2011, https://bipartisanpolicy.org/download/?file=/wp-content/uploads/2019/03/Domenici-Rivlin-Protect-Medicare-Act-Backgrounder_0.pdf.
(79) Committee for a Responsible Federal Budget, “Ryan and Wyden Offer Ambitious Health Care Proposal,” Dec. 15, 2011, https://www.crfb.org/blogs/ryan-and-wyden-offer-ambitious-health-care-proposal.
(80) Erica York, “Inflation Reduction Act’s Price Controls Are Deterring New Drug Development,” Tax Foundation, Apr. 26, 2023, https://taxfoundation.org/inflation-reduction-act-medicare-prescription-drug-price-controls/.
(81) Committee for a Responsible Federal Budget, “Two Ways to Reduce Prescription Drug Costs,” Jul. 26, 2021, https://www.crfb.org/blogs/two-ways-reduce-prescription-drug-costs.
(82) Committee for a Responsible Federal Budget, “Injecting Price Competition into Medicare Part B Drugs,” Jul. 2, 2021, https://www.crfb.org/sites/default/files/managed/media-documents2022-02/HSI_PartBDrugs.pdf.
(83) See appendix for a description of the model.
(84) See the individual provisions listed in Table 4 of our recent analysis of the president’s budget, which does not include the president’s proposed 25 percent minimum tax on unrealized capital gains of high earners (due to its novelty and highly uncertain effects), tax credits, or corporate tax increases. See Garrett Watson, Erica York, William McBride, Alex Muresianu, Huaqun Li, Alex Durante, “Details and Analysis of President Biden’s Fiscal Year 2025 Budget Proposal,” Tax Foundation, Mar. 22, 2024, https://taxfoundation.org/research/all/federal/biden-budget-2025-tax-proposals/.
(85) Garrett Watson, “Sustainably Reforming Social Security and Medicare Will Need More than Just Tax Hikes,” Tax Foundation, Feb. 28, 2024, https://taxfoundation.org/blog/medicare-social-security-tax-spending-deficits/.
(86) This option would apply income tax to ESI benefits but keep the current exclusion from payroll tax.
(87) Extended business provisions include 100 percent bonus depreciationBonus depreciation allows firms to deduct a larger portion of certain “short-lived” investments in new or improved technology, equipment, or buildings in the first year. Allowing businesses to write off more investments partially alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs.
, immediate expensing for R&D, and limitation of deductions for interest expense to 30 percent of earnings before interest, tax, depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment.
, and amortization. However, it does not include any changes to current law international provisions such as the tax on global intangible low-taxed income (GILTI). See Erica York, Garrett Watson, Alex Durante, Huaqun Li, Peter Van Ness, William McBride, “Details and Analysis of Making the 2017 Tax Reforms Permanent,” Tax Foundation, Nov. 8, 2023, https://taxfoundation.org/research/all/federal/making-2017-tax-reform-permanent/.
(88) Garrett Watson, Erica York, William McBride, Alex Muresianu, Huaqun Li, Alex Durante, “Details and Analysis of President Biden’s Fiscal Year 2025 Budget Proposal,” Tax Foundation, Mar. 22, 2024, https://taxfoundation.org/research/all/federal/biden-budget-2025-tax-proposals/.
(89) Garrett Watson, “Sustainably Reforming Social Security and Medicare Will Need More than Just Tax Hikes,” Tax Foundation, Feb. 28, 2024, https://taxfoundation.org/blog/medicare-social-security-tax-spending-deficits/.
(90) This reform would shift compensation towards cash and away from ESI over the long run. Our modeling assumes workers value equally labor compensation in the form of ESI versus cash, which may not be the case. To the extent workers prefer cash compensation, or to the extent the reform otherwise improves efficiency, our modeling overstates the economic drag from this reform. See Congressional Budget Office, “Reduce Tax Subsidies for Employment-Based Health Insurance,” Dec. 7, 2022, https://www.cbo.gov/budget-options/58627. See also Michael Cannon, “Tackling America’s Fundamental Health Care Problem,” Cato Institute, July/August 2020, https://www.cato.org/policy-report/july/august-2022/tackling-americas-fundamental-health-care-problem.
(91) Erica York, Garrett Watson, Alex Durante, Huaqun Li, Peter Van Ness, William McBride, “Details and Analysis of Making the 2017 Tax Reforms Permanent,” Tax Foundation, Nov. 8, 2023, https://taxfoundation.org/research/all/federal/making-2017-tax-reform-permanent/.
(92) William McBride, Huaqun Li, Garrett Watson, Alex Durante, Erica York, and Alex Muresianu, “Details and Analysis of a Tax Reform Plan for Growth and Opportunity,” Tax Foundation, updated Jun. 29, 2023, https://taxfoundation.org/growth-opportunity-us-tax-reform-plan/.
(93) Tax Foundation, “Economic and Tax Modeling,” https://taxfoundation.org/topics/economic-and-tax-modeling/
(94) Tax Foundation, “The Tax Foundation’s Taxes and Growth Model,” Apr. 11, 2018, https://taxfoundation.org/research/all/federal/overview-tax-foundations-taxes-growth-model/.
(95) Gabriel Chodorow-Reich, Matthew Smith, Owen M. Zidar, and Eric Zwick, “Tax Policy and Investment in a Global Economy,” NBER working paper 32180, March 2024, https://www.nber.org/papers/w32180; Thomas Winberry, “Lumpy Investment, Business Cycles, and Stimulus Policy,” American Economic Review 111:1 (January 2021), https://www.aeaweb.org/articles?id=10.1257/aer.20161723.