Sometimes when you are a conference and panel, it is like bringing friends together, and this is one case like that. Onhave real friends of nabe the dais today. Pleased to have Doug Elmendorf with us, dean of the kennedy school, professor of Public Policy and as all of you the cbo. T director of he has been in front of us many times and we always find his views and positions extremely and lightning. It is wonderful to have doug with us. It is also good to have Clint Humbert with us, glenn of financeh us, dean and economics at Columbia Business School and the past chair of the cba under george w. Bush. Finally, our moderate moderator who is ceo and president of the peterson ambition. Michael oversees stratus he strategy for the foundation and looking at the key fiscal policy challenges that we all face. Michael and the foundation are longtime supporters and back backers and we are delighted to have you. Over to you, michael. Michael thank you. The peer found Peterson Foundation is very proud to be back at nabe and we have a great panel where we focus on fiscal policy. We like to find Common Ground and will see if we can find some areas of agreement. Just a reminder for those of you s, we will getion to them at the end. We heard about trade policy this morning, i want to start by looking at our fiscal outlook. There they are on path to increase. We will reach 20 trillion dollar deficits again by 2020. So, glenn, let me start with you. What is your perspective on this outlook, how urgent is it and what is the right timetable back . Glenn with respect to a timetable, the fiscal situation facing the United States over the medium, long run is not good. We know that and what the underlying drivers are having to do with entitlement reforms. Having said that, i do not expect in the near term, a serious effort at restraining. Uture debt indeed, if there were pressures, they might go in the other direction depending on choices made in the budget and in the tax bill. I think the administration should be rightly focused first on raising growth. I think,dent has, quite successfully reset expectations about growth. Now he and congress have to present a set of policies that will deliver that. I see that is coming first. I dont expect the president or the converse congress to take action on the debt in the near future. Michael do you think they should . Glenn i think the important problems for the country are medium to longterm and it is important to address those problems. Unless we can raise growth, those problems become even harder. I would focus on growth first and then to the mediumterm challenges and the entitlements. As you know, those are hard to do because they are politically unpopular. In this room, it would not be difficult for us to come up with ways that are both progressive and help the deficit, that those are elusive in washington. Michael doug, what is your view . Doug first of all, thank you here for having me today. I agree with agree with half of what glenn said. When i look out a decade or two at our fiscal situation, i am concerned about rising levels of debt. Have shown no ability as a country to adopt policies to address that challenge. We havent even really had uninformed, honest discussion of that outside of groups like this. Years i look out several in the federal budget, i am much more worried about the prospect of sharp cuts in federal spending that i think would be damaging to longterm growth cutting atbat back on federal investment and especially damaging to in terms of lower and middle income people who are more dependent on certain forms of Government Spending. I think our Economic Policy in this country should be oriented explicitly towards raising Living Standards for lower and middle income people. There are a number of steps we can take to do that, but the first thing is to do no harm, by not taking away benefits people are depending on. So i worry a lot in the shortterm about inappropriate cutbacks in Government Spending. I think we can make changes to put the debt on a more sustainable path but those changes are less urgent because Interest Rates are so low. Last panel just finished with that point. Ive written a paper coming out in the journal of economics perspective shortly about the implications of low Interest Rates for fiscal policy. Number of possible explanations about low Interest Rates and they have somewhat different explanations for fiscal policy. On balance, they up imply it is appropriate to have more debt and federal investment than if written Interest Rates were higher. Michael is there not a direct connection between the level of debt and the Spending Priorities you are talking about for those concerned about Discretionary Spending . It is at historic lows and estimated to go lower. Doesnt that have an impact on the import ability to afford those payments . When that is right but concerned about supporting federal investment, the thing to debt in tackle the other ways. Were about to have federal investment, a smaller pretense percentage of gdp than at any point in my lifetime. Your point,g up on glenn, about the president. I think he has reset expectations about growth. He has reset them in a totally unrealistic way. I dont think there is strong evidence that this in the straight administrations Economic Policy will lead to growth then the previous administrations. It might boost growth, on the other hand, we have cutbacks in federal investment, restrictive immigration policies, the prospect for restricted trade policies. Whether those ballots out to raise or lower growth relative to the policies we have had in place is not at all clear to me. I think we could achieve sustained growth in the low 2 growth range. Over a decade, that would be a real accomplishment. I am not sure setting expectations of three and four is advancing the national discussion. Caller i do worry that we areworry really eviscerating what washington has called Discretionary Spending. We go out and ask people on the street what government does, they will answer questions like public goods. But that isnt what government is doing. We are on autopilot to become a nation of entitlements and Interest Payments with tiny business of the public goods that the public depends on. I think that is a real issue. I do think faster growth is possible and i do think tax reform and Regulatory Reform are a key element. Some of the numbers i hear bandied about sound overly optimistic. If you ask me, could the American Economy grow in the would say it absolutely can. It would take a policy makes that aims at raising group substantially. Are those probably . I cant say that, are they possible question yes. Michael what else would you put on the list of growth oriented policies . Glenn tax reform. If you look at what professional models as the largest changes in the levels of outputs, changing growth over a period of time, i would put tax reform at the top. I would also put Regulatory Reform high on my list because it has blocked some of the channels we would normally have for progrowth policy. I think better policy at the fed we just talked about in the last panel, would also be helpful. Tax reform would be number one. There is obviously a bill and discussed from the congress, i dont know where the Administration Stands on that bill, but that is definitely a step in the right direction with some important caveats. I agree with glenn that tax reform can boost Economic Growth. But there are a few points. One is how much extra growth we expect. The the chairman of committee produced with his staff a very thorough tax reform the jointstaff of committee on taxation estimated that legislation would rage raise gdp by 1 or so after a decade. That is 1 10 of a percentage point annual growth. Part of the constraint that they imposed on themselves in constructing that legislation was revenue neutral and distribution neutral. In order to abandon one or both of those constraints, one might achieve faster Economic Growth. Revenuene of abandons neutrality, they have to think about the longterm consequences of running up federal debt. If one abandons distribution neutrality, you need to think about whether the policy is boosting incomes lower to lower and middle income people, they will benefit to some extent from lower Economic Growth, but the lesson of the past two decades is that a rising tide does not lift all boats much at all. If one has tax reform that shifts burden away from higher income people and towards lower income people, one might get higher Economic Growth by lowering the tax on capital income. But it still makes us off the people who benefited the leased from economic gains in this country over the last two decades. And the people whose economic plight has rightfully received more attention over the past year. Think the plan was an example of a lesson in tax reform. I thought the plan was not very persuasive, it actually raised the cost of capital on marginal investments. This is why we are doing tax reform . If you want to have real tax reform, deep cuts in business marginal tax rates, moving towards expanding of investment, but dirty secret has always been you cant get there from here without some new Revenue Source or spending cuts or tolerating a higher deficit. New Revenue Sources with border adjustment, there are good tax policy reasons for doing that. I ams tactical skeptical that is a good discussion to have. I think the tax reform debate will center on revenue because to get the rate cuts that are needed for growth, you are going to have to pay for that somehow. Estimates,g to most Corporate Income taxes race others loselion, about 2 trillion and border adjustment tax brings in about 1 trillion and there is growth and other things we need to a problem with the border adjustment tax is that people in washington who like it are wrong. People think it is protectionist, that is wrong. Second, they think it raises a lot of revenue. That cant be true because a nation that runs a deficit today in a world where there are 10 year budget windows, i can understand. I like border adjustment for tax policy reasons. President of trump is rightly concerned about. The way to thread the needle is Something Like a partial border adjustment, which would get at those issues, raise some revenue in the near term and the administration and congress would have to make other adjustments to right the ship. Doug i agree with glenns points about some of the tax policy advantages of a border adjustment tax, but we should the economy is expected to the dollar to rise substantially. That is an important consequence of here and elsewhere. It reduces the value of foreign earnings to american, our ownership of foreign assets. It also means Foreign Countries are individuals who oh money denominated in dollar will find those debts substantially larger in the form of other currencies. Even if the dollar does it just fully or partially, as much as is needed in the tax policy sense, it can be disruptive in Macro Economic terms. One of the goals is that it should be revenue neutral. You agree with that goal . To have flexibly on the goal . Glenn we know we dont want to undertake policies that make permanent adverse consequences. Or the fisk because we just started the conversation we are not on the right path. Having said that, the tax bill has to be revenue neutral or should a package of proposals be budget neutral, those are two different questions. I dont how the administration is thinking about it. Honestly, in the world world of tax debates, it would be hard to imagine this ultimate tax bill be revenue neutral. There arebecause risks in the border adjustments. Other new taxes like a carbon tax, i dont see any Political Support their and the administration hasnt shown an appetite for the spending reductions that would be required to make up the difference. Honestly i think that is how it will play out if we get a tax bill. Doug i think tax reform should be revenue neutral. I would include the dynamic effects, if you will. I written i wrote a paper where i supported the idea of dynamic scoring for legislation. That would have significant Macro Economic effects. Estimates should include those effects and on that basis, would make tax reform revenue neutral. Ultimately, i think it is clear we need to have higher taxes in this country for all people not liking to pay taxes and being against Government Spending in the abstract, they are actually quite supportive of benefits for older americans. That is where we know most of the spending goes in for a vast majority of the growth spending is going. If you look a few decades from now, the increase in noninterest federal spending leaving aside the dynamics in the debt but increased on federal spending is more than accounted for by the fact we medicarepopulation on spending. When push comes to shove, it will not they will raise taxes to pay those. Thisnk cutting revenue at point just goes so clearly in , that we direction should not be supportive of that. Effectsthink positive of tax reform, even in more progrowth tax reform and chairman camps proposal would be significant gains for the economy to justify increasing deficits through tax reform at this point. Glenn i dont think that higher taxes can be the solution. If you look at the gap caused by Social Security, medicare, you would have to be raising taxes ,o levels that are unfathomable at least in the type of tax system we have. If america wants to be on the path, it must have a consumption tax instead. There would be no other way to have growth. The tax debate and budget debate have to be linked. Public finance 101, the first order choice of government is to spend. The rest is how you pay for it. Taxes today, borrowing. We have to have this discussion and we are not having an honest discussion with the American People about it. Michael lets go deeper on dynamic scoring. It seems if we get into this debate it will be a conflict critical component about the scoring and how you adjust. What are the right and wrong ways to do this question mark to do this customer glenn scoring should be done for big things. Why is Congress Considering tax reform, because they think it does have some economic income impact. We have to think about where that comes from. Different tax changes are very different in their dynamic scoring effects. Corporate rate cut, capital tax changes can have large dynamic effects. Cooks in cuts in him for marginal not so much. As politically popular as those may be. About it, iking think it is important. The administration and Congress Also have to think about the overall gdp affects of an economic package, which include more than taxes, could include other things that the president might propose. I think it is a good exercise. The two ships, the omb ship and will doressional ship it differently and for different audiences, but i think this is an important discussion and one in which people in this room should be playing a role. Michael would you like to just plug your paper western mark paper . Glenns point about how different tax reforms have different economic effects. I think it is important for the congress to have this from its staff, all of the economic effects of tax reform proposals or Health Reform proposals or Immigration Reform proposals or large scale changes in policy, that they should seek different economic facts. And way those decisions. One thing i would add and back to my point about distributional effects of policy changes as well. We have just seen a very striking diversion in the of higher income americans and lower and middle income americans. That economic diversion is mirrored in a social diversion. We see a frightening rise in opioid use, we see diverting education level and life expectancy. Out of wedlock births. The socials consequences of a lack of Economic Opportunity are materialr beyond the consequences and those material and social consequences have implications for the cohesiveness of our society, for the functioning of our political process, for our ability to lead internationally. As we make changes in tax policy and spending policy, or other government policies, we need to have these distributional concerns front and center. I dont mean by that that all economic policies are a zerosum game. I dont believe that. I think there are tradeoffs between what we do to make the entire pie larger and what you do to make certain slices of that pie larger and we should not be just about making the overall pie larger. Michael two examples of this today. One is the Corporate Tax, which when i went to school was taught was largely borne by owners of capital, but it is not what the profession believes today, that labor bears the strong share of the burden of the Corporate Tax, meaning some of the gains i mentioned would be part of tax reform. Something i am disappointed not to hear more in the current tax debate is wage support and work support. For the reasons doug suggested. There has been bipartisan , the outgoing president and speaker ryan have talked about expanding the income tax credit for childless workers