The Federal Reserve Board’s Payroll Tax on Our Children

The Fed’s tax hikes are far more costly to ordinary workers than any conceivable tax increase would be. 

The deficit hawks appear to be making a comeback, at least in the media, if not among the public at large. This isn’t surprising since we have billionaires prepared to spend large chunks of their money to scare people about the deficit, regardless of how unimportant it might be as an economic concern.

The latest story line is that the deficit may not be a problem now, but it is projected to grow in size over the next decade. In particular, as interest rates rise we will be forced to divert an increasing portion of government spending to interest payments and away from things we might really care about, like improving infrastructure and education.

There are many things wrong with this analysis, most obviously that even if interest payments rise as projected, relative to the size of the economy they will still be less in 2025 than they were in the early 1990s. And the interest burden in 1990s didn’t prevent us from having a decade that ended with four years of broadly shared wage growth and low unemployment. So the horror story here doesn’t look quite so frightening.

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