Macro Musings with David Beckworth · Mercatus Center at George Mason University

Daniel Bunn on Fiscal Issues Currently Facing the US Government

May 26, 2025·50 min·4 clips

The Tax Foundation's model reveals how tax cuts impact the economy beyond static revenue estimates.

This episode of Macro Musings features host David Beckworth in conversation with Daniel Bunn, President and CEO of the Tax Foundation, about the current U.S. fiscal outlook and tax policy debates. Bunn brings experience from advising U.S. Senators and leading an organization focused on data-driven tax analysis. The discussion centers on the structural drivers of U.S. debt, the economic impact of recent policy proposals, and the tools used to model these effects. The Tax Foundation utilizes a small open economy model developed over decades to analyze the dynamic effects of tax policy changes on revenue and economic growth. Bunn explains that their model differs from Congressional Budget Office approaches by more directly calculating how tax changes influence labor supply and capital investment. A key historical context is the debate over dynamic scoring, where the Tax Foundation helped push for analyses that account for behavioral responses to tax policy. Current CBO projections show federal revenues at 17-18% of GDP and expenditures at 23-24%, creating sustained large deficits. Bunn argues that substantive debt reduction is impossible without reforming the three major entitlement programs: Social Security, Medicare, and Medicaid. He notes that interest payments on the national debt have recently surpassed defense spending, consuming roughly 20 cents of every federal tax revenue dollar. The conversation examines President Trump's tariff proposals, which Bunn and his colleague Erica York analyze as generating insufficient revenue to meaningfully offset income tax cuts. They estimate tariffs could raise over $2 trillion in a decade but would be needed annually to fund proposed tax reductions. Bunn states the recent tariffs constitute the largest tax increase since George H.W. Bush, with economic incidence largely falling on U.S. consumers through higher prices. He highlights a contradiction in the administration's messaging, which simultaneously frames tariffs as a revenue tool and as leverage for freer trade. The episode notes political reluctance to challenge this use of executive trade authority, despite constitutional questions about Congress's power to levy taxes. Bunn suggests tariff uncertainty and potential economic slowdown could ironically widen the budget deficit further. A surprising insight is the potential for Democrats to campaign on a tax cut message by linking it to consumer costs from Republican-led tariffs. Bunn describes the current House and Senate budget resolutions as aiming to extend the 2017 tax cuts, which could increase long-term GDP by 1.1 percentage points but add trillions to deficits. The tone is analytical and conversational, blending economic theory with real-time policy assessment. This episode would appeal to listeners interested in federal budget mechanics, tax policy modeling, and the intersection of economics and politics. Those seeking entertainment or narrative storytelling might find it too technical.

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