Fix for ‘Eyepopping’ Inflation Is Slashing Government Deficit, Budget Watchdog Says
Fix for ‘Eyepopping’ Inflation Is Slashing Government Deficit, Budget Watchdog Says

By Naveen Athrappully

Cutting down the government’s budget is the best way to deal with out-of-control inflation, according to Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB).

Annual inflation hit 9.1 percent in June, which is a new four-decade high. Calling inflation numbers “eyepopping,” MacGuineas said that taming it should be a “top national priority,” according to a July 13 press release by CRFB.

The Federal Reserve is going to need help bringing down inflation without pushing the economy into a recession, and the best thing lawmakers can do in the short-term is to pass a “deficit reduction reconciliation bill,” she argues.

“Legislation could temper excessive demand among those who can best afford to reduce their spending, and more directly lower prices by reducing prescription drug costs,” MacGuineas said.

Some lawmakers are continuing to insist on tax cuts “by increasing the $10,000 cap on the state and local tax deduction (SALT).” The SALT deduction provision allows taxpayers who itemize when filing federal taxes to deduct certain taxes paid to local and state governments.

MacGuineas believes increasing the cap on SALT will be costly and add to inflationary pressures. The proposal passed by the House seeks to reduce taxes by $50 billion annually, almost 95 percent of which will benefit the country’s richest fifth of households.

By helping the Fed rein in inflation, Congress has the best path to preventing a recession, MacGuineas said. This involves reducing spending and increasing revenues rather than cutting taxes for wealthy households, she added.

Budget Deficit

In a July 14 blog post, CRFB criticized policymakers for doing little to contain the $24 trillion in national debt, and most legislation in recent years has “added” to the budget deficit, the organization said.

In fiscal year 2021, the federal deficit totaled nearly $2.8 trillion, which is almost triple the 2019 shortfall. The fiscal year 2021 deficit was at 12.4 percent of GDP, up from 4.7 percent in 2019, according to data from the Congressional Budget Office.

High debt and deficits in a high inflation environment will make it very hard to borrow in situations like a recession. A deficit-reduction reconciliation bill is “likely to reduce, not increase,” the risk of recession, CRFB said in another July 14 article.

As many Democratic lawmakers continue pursuing a revised filibuster-proof budget reconciliation bill, some, like Sen. Joe Manchin of West Virginia, have expressed discomfort about passing a large spending bill now that inflation is at record highs.

“It depends on if we can look at things and find a pathway forward that’s not [inflationary],” Manchin recently told reporters.

“We know what we can pass. It’s basically the drug pricing on Medicare,” he said. “Is there any more we can do? I don’t know. But I’m very, very cautious.”

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