Associated Programs

Federal Budget Policy

Federal Budget Policy

The demographic shift resulting from the aging of the baby boomer generation presents a number of potential dilemmas for policymakers. Whether a shrinking working-age population can support its own dependents, in addition to retirees, has led to debates about the increasing size of Social Security, Medicare, and Medicaid budgets—now and in the future. Questions have been raised about whether these government programs can continue to function in the same manner, and achieve the same goals, as they do today. Will structural reform be necessary? Do we wish to provide the same, or a higher, level of support equally throughout the aging population? Should some, or all, benefits be “income tested”? What can be done today to offset the problems of the future?

In aggregate terms, fiscal debates have turned from what to do about growing federal budget surpluses to what constitutes the necessary size and composition of a stimulus package. Some economists have argued that, by creating a wider pool of funds available for investment, “fiscal responsibility” resulted in greater access to investment funds by private sector firms, which, in turn, stimulated economic growth. Others contend that the unprecedented growth of the 1990s happened in spite of budget surpluses, and that if the composition of private versus public funding had been more in balance, growth and employment would have expanded even further. These debates are related to those that surround the current demand shortfall and to calls for fiscal stimulus: if budget surpluses were the cause of economic growth, an argument can be made that fiscal stimulus should focus on investment-targeted tax cuts. If, however, surpluses were the result of economic growth, then demand-led fiscal policies, such as spending programs and tax cuts aimed broadly over the income distribution, should be the focus.

In responding to the above-listed issues, Levy Institute scholars have concentrated recent research on evaluating proposals that would alter the structure of Social Security to deal with future funding shortfalls, privatize any or all of the Social Security program, and restructure Medicaid financing to widen the availability of funding for long-term care. Other recent analyses deal with specific budgetary issues, such as tax-cut proposals and evaluation of the causes and effects of federal budget surpluses.

Research Program

Economic Policy for the 21st Century

Program Publications