Macro Musings with David Beckworth Daniel Bunn on Fiscal Issues Currently Facing the US Government
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May 26, 2025 Daniel Bunn, President and CEO of the Tax Foundation, dives into pressing fiscal issues facing the U.S. government. He discusses the history and importance of tax models in shaping effective policies. Bunn highlights the economic threats posed by tariffs and critiques current budget reconciliation efforts. If he were president, he outlines radical reforms to the tax code. The conversation also explores the implications of entitlement spending and the urgent need for sustainable fiscal strategies to manage national debt.
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Tax Foundation's Economic Model
- Tax Foundation uses a small open economy model linking tax policy to labor and capital responses.
- Their model shows American incomes may fall with more debt, even if GDP appears stable.
Importance of Dynamic Tax Models
- Dynamic tax models capture behavioral responses influencing revenue and economic growth.
- Not all tax cuts equally stimulate growth; modeling helps prioritize which tax changes have dynamic effects.
Tariffs as Inefficient Revenue
- Tariffs are an inefficient revenue source and can't fund large income tax cuts.
- Relying on tariffs for revenue is risky and contradicts goals of free trade and economic growth.