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William Emmons, St. Louis Fed assistant vice president and economist, discussed “Bringing the Federal Deficit Under Control” as part of the “Dialogue with the Fed” evening discussion series for the general public on Oct. 18, 2011. He explored the depths of the deficit problem, including whether current laws or policies provide sufficient solutions, and what spending and tax reforms should be considered going forward. Following his presentation, Emmons was joined by Chris Waller, senior vice president and director of Research, and Julie Stackhouse, senior vice president of Banking Supervision and Regulation, for a question-and-answer session with the audience.
Emmons discussed the nation’s profound budgetary and economic challenges, looking at how indicators of U.S. fiscal health compare poorly with peer nations (the G-7 minus Italy.) He explained how the “fiscal gap” between revenue and outlays in the U.S. was estimated to be $1.3 trillion every year between now and 2085 if the nation continues on its present course. Emmons asked if Americans are willing to let the debt go continually higher under current policies, explaining there is really is no escape through indefinite borrowing and rolling over the debt. By refusing to make tough choices, eventually the government will raise revenue primarily to pay interest on the debt. He cited polls that consistently reveal that the majority of the public is willing to increase the tax burden on all citizens to reduce the deficit. However, Emmons explains that under current law most households’ income-tax burden would rise over time, and incentives to work, save and invest could be harmed. The Bowles-Simpson Deficit Commission suggested a better way, and solid public opinion demonstrates that there should be shared pain across the board. Emmons explored alternative recommendations from Fed Chairman Ben Bernanke and certain economists, including avoiding abrupt fiscal actions, cutting mandatory spending, continuing to cut discretionary spending and increasing revenues through tax reforms. To sum up, Emmons said that there can be no sacred cows in developing a real solution.