Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro . The longer and higher Federal Reserve officials raise interest rates to curb inflation, the greater the risk that they will go too far, causing a recession or breaking something in financial markets. To avoid a mistake, Congress and the White House must step up and do more to help the central bank, policy analysts at the Committee for a Responsible Federal Budget say. Today, in a new paper shared with Morning Money, they lay out a blueprint for fiscal policymakers to reduce budget deficits, outlining policies they say will also help boost the Fed’s inflation-fighting power and hopefully reduce the risk of a recession. “We need a fiscal reset,” Maya MacGuineas, the group’s president, told MM. Inflation remains near a four-decade high, and federal debt held by the public topped $24 trillion at the end of the fiscal year — up from about $17 trillion in early 2020. Meanwhile, interest costs on the debt are soaring, as your MM host wrote this week . “And yet what we’ve seen is — basically with one exception, the Inflation Reduction Act — nonstop borrowing,” MacGuineas said. The framework shows what policy changes are necessary to fight both the inflation and debt challenges, she said. While fiscal blueprints are typically meant to be phased in gradually, this one includes faster-acting changes aimed at cooling price pressures by reducing deficits by $350 billion in the first calendar year. The goal: Stabilize the debt at its current level — about 97.5 percent of gross domestic product — within a decade, a change that would require roughly $7 trillion in savings. Among the ideas:
- Restoring discretionary spending caps similar to those that were in place in the 1990s and during the previous decade;
- Reducing Medicare provider payments and lowering prescription drug costs;
- Imposing a broad “deficit reduction” surtax on individual and corporate income;
- Increasing the Social Security retirement age and revamping the payroll tax to raise more revenue for the retirement program;
- And changing the way inflation is measured government-wide.
CRFB said the plan could reduce inflation by as much as a full percentage point in the near term.
“We’re not saying, ‘Congress, here’s the answer, adopt this,’” she said. “We’re saying, ‘It’s time to start having a realistic discussion about what needs to happen.’” The nonpartisan group took heat from Republicans this summer when they praised the Inflation Reduction Act for its deficit-reducing policies, which they said would help curb inflation. But they’ve lately been a thorn in the White House’s side, blasting President Joe Biden’s student debt forgiveness plan and accusing him of taking undeserved credit for falling deficits this year. MacGuineas said they’re willing to work with anyone who’s interested in pursuing the ideas to help design a policy proposal. IT’S WEDNESDAY — Have a tip, story idea or feedback to share? Let us know: kdavidson@politico.com and ssutton@politico.com .
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