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    Biden’s Student Loan Plan Sets Off Fierce Debate Among Economists

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    Liberals and more moderate Democrats are arguing over the impact on inflation, the federal budget deficit and high earners.WASHINGTON — President Biden’s plan to forgive some student debt has sharply divided liberal economists and pitted the White House economic team against both independent analysts and veterans of past Democratic administrations.The areas of disagreement include how much the package of debt relief and other changes to student loans will cost taxpayers and whether the plan is “paid for” in budgetary terms. The plan’s impact on inflation, which is rising at a rapid clip, and the degree to which it will help those most in need are also matters of contention.The plan, announced last week, includes forgiving up to $10,000 in loans for individuals earning $125,000 or less and an additional $10,000 for borrowers from low-income backgrounds who received Pell Grants in college. Mr. Biden also proposed changes to loan repayment plans going forward that will reduce monthly costs and eliminate interest accumulation for potentially millions of lower-earning borrowers who maintain payments.White House officials have offered partial estimates of who will benefit most from those moves, and how much they might reduce federal revenue. The officials have made a case for why the package will not add to inflation. And they have claimed it will be “paid for,” though not in any way that budget experts agree fits that term.Conservative economists have attacked the plan, claiming it would stoke higher inflation and burden taxpayers with hundreds of billions of dollars in new debt. Some liberal economists have defended it as a lifeline for graduates who have been harmed by the soaring costs of higher education.What to Know About Student Loan Debt ReliefCard 1 of 5What to Know About Student Loan Debt ReliefMany will benefit. More

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    Analysis Deems Biden’s Climate and Tax Bill Fiscally Responsible

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    Despite Republican claims, the new legislation would be only a modest corporate tax increase, Congress’s Joint Committee on Taxation found.After more than a year of trying — and failing — to pack much of President Biden’s domestic agenda into a single tax-and-spend bill, Democrats appear to have finally found a winning combination. They’ve scrapped most of the president’s plans, dialed down the cost and focused on climate change, health care and a lower budget deficit.As soon as party leaders announced that new bill last week, Republicans began attacking it in familiar terms. They called it a giant tax increase and a foolish expansion of government spending, which they alleged would hurt an economy reeling from rapid inflation.But outside estimates suggest the bill would not cement a giant tax increase or result in profligate federal spending.An analysis by the Joint Committee on Taxation, a congressional nonpartisan scorekeeper for tax legislation, suggests that the bill would raise about $70 billion over 10 years. But the increase would be front-loaded: By 2027, the bill would actually amount to a net tax cut each year, as new credits and other incentives for low-emission energy sources outweighed a new minimum tax on some large corporations.That analysis, along with a broader estimate of the bill’s provisions from the nonpartisan Committee for a Responsible Federal Budget, suggests that the legislation, if passed, would only modestly add to federal spending over the next 10 years. By the end of the decade, the bill would be reducing federal spending, compared with what is scheduled to happen if it does not become law.And because the bill also includes measures to empower the Internal Revenue Service to crack down on corporations and high-earning individuals who evade taxes, it is projected to reduce the federal budget deficit over a decade by about $300 billion.Adding up the headline cost for what Democrats are calling the Inflation Reduction Act is more complicated than it was for many previous tax or spending measures that lawmakers approved. The bill blends tax increases and tax credits, just as Republicans did when they passed President Donald J. Trump’s signature tax package in 2017. But it also includes a spending increase meant to boost tax revenues and a spending cut meant to put more money in consumers’ pockets.Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, said the composition of the deal was vastly different from a larger bill that Democrats failed to push through the Senate in the fall. It included several spending programs that were set to expire after a few years, and budget hawks warned that the overall package would add heavily to federal debt if those programs were eventually made permanent, as Washington has been known to do, without offsetting tax increases.Ms. MacGuineas called the original idea, known as Build Back Better, “a massive gimmicky budget buster.” She had kinder words for the new package, saying it “manages to push against inflation, reduce the deficit, and, once fully phased in, it would actually cut net spending, without raising net taxes.”“That is a pretty monumental improvement,” she added.The bill springs from an agreement between Senator Chuck Schumer of New York, the majority leader, and Senator Joe Manchin III of West Virginia, a key centrist Democrat. President Biden blessed it last week, and it carries what remains of what was once his $4 trillion domestic agenda.Understand What Happened to Biden’s Domestic AgendaCard 1 of 7‘Build Back Better.’ More

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    How Joe Manchin Left a Global Tax Deal in Limbo

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    Treasury Secretary Janet L. Yellen’s signature achievement is in jeopardy if the United States cannot ratify the tax agreement that she brokered.WASHINGTON — In June, months after reluctantly signing on to a global tax agreement brokered by the United States, Ireland’s finance minister met privately with Treasury Secretary Janet L. Yellen, seeking reassurances that the Biden administration would hold up its end of the deal.Ms. Yellen assured the minister, Paschal Donohoe, that the administration would be able to secure enough votes in Congress to ensure that the United States was in compliance with the pact, which was aimed at cracking down on companies evading taxes by shifting jobs and profits around the world.It turns out that Ms. Yellen was overly optimistic. Late last week, Senator Joe Manchin III, Democrat of West Virginia, effectively scuttled the Biden administration’s tax agenda in Congress — at least for now — by saying he could not immediately support a climate, energy and tax package he had spent months negotiating with the Democratic leadership. He expressed deep misgivings about the international tax deal, which he had previously indicated he could support, saying it would put American companies at a disadvantage.“I said we’re not going to go down that path overseas right now because the rest of the countries won’t follow, and we’ll put all of our international companies in jeopardy, which harms the American economy,” Mr. Manchin told a West Virginia radio station on Friday. “So we took that off the table.”Mr. Manchin’s reversal, couched in the language used by Republican opponents of the deal, is a blow to Ms. Yellen, who spent months getting more than 130 countries on board. It is also a defeat for President Biden and Democratic leaders in the Senate, who pushed hard to raise tax rates on many multinational corporations in hopes of leading the world in an effort to stop companies from shifting jobs and income to minimize their tax bills.The agreement would have ushered in the most sweeping changes to global taxation in decades, including raising taxes on many large corporations and changing how technology companies are taxed. The two-pronged approach would entail countries enacting a 15 percent minimum tax so that companies pay a rate of at least that much on their global profits no matter where they set up shop. It would also allow governments to tax the world’s largest and most profitable companies based on where their goods and services were sold, not where their headquarters were.Failure to get agreement at home creates a mess both for the Biden administration and for multinational corporations. Many other countries are likely to press ahead to ratify the deal, but some may now be emboldened to hold out, fracturing the coalition and potentially opening the door for some countries to continue marketing themselves as corporate tax havens.For now, the situation will allow for the continued aggressive use of global tax avoidance strategies by companies like the pharmaceutical giant AbbVie. A Senate Finance Committee report this month found that the company made three-quarters of its sales to American customers in 2020, yet reported only 1 percent of its income in the United States for tax purposes — a move that allowed it to slash its effective tax rate to about half of the 21 percent American corporate income tax rate.Not changing international tax laws could also sow new uncertainty for large tech companies, like Google and Amazon, and other businesses that earn money from consumers in countries where they do not have many employees or physical offices. Part of the global agreement was meant to give those companies more certainty on which countries could tax them, and how much they would have to pay.America’s refusal to take part would be a significant setback for Ms. Yellen, whose role in getting the deal done was viewed as her signature diplomatic achievement. For months last year, she lobbied nations around the world, from Ireland to India, on the merits of the tax agreement, only to see her own political party decline to heed her calls to get on board.Treasury Secretary Janet L. Yellen and Finance Minister Paschal Donohoe of Ireland met in Washington last month.Andrew Harnik/Associated PressAfter Mr. Manchin’s comments, the Treasury Department said it was not giving up on the agreement.“The United States remains committed to finalizing a global minimum tax,” Michael Kikukawa, a Treasury spokesman, said in a statement. “It’s too important for our economic strength and competitiveness to not finalize this agreement, and we’ll continue to look at every avenue possible to get it done.”Jared Bernstein, a member of Mr. Biden’s Council of Economic Advisers, told reporters at the White House on Monday that Mr. Biden “remains fully committed” to participating in a global tax agreement.Understand What Happened to Biden’s Domestic AgendaCard 1 of 6‘Build Back Better.’ More

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    Democrats Propose Raising Taxes on Some High Earners to Bolster Medicare

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    The draft plan, which is expected to be unveiled in the coming days, is part of talks over how to salvage pieces of President Biden’s domestic agenda.WASHINGTON — Senate Democrats will push to raise taxes on some high-earning Americans and steer the money to improving the solvency of Medicare, according to officials briefed on the plan, as they cobble together a modest version of President Biden’s stalled tax and spending package.The proposal is projected to raise $203 billion over a decade by imposing an additional 3.8 percent tax on income earned from owning a piece of what is known as a pass-through business, such as a law firm or medical practice. The money that would be generated by the change is estimated to be enough to extend the solvency of the Medicare trust fund that pays for hospital care — currently set to begin running out of money in 2028 — until 2031.It is the most recent agreement to emerge from private negotiations between Senator Chuck Schumer of New York, the majority leader, and Senator Joe Manchin III of West Virginia, a conservative-leaning Democrat who has demanded that his party rein in its sweeping ambitions for a domestic policy plan. In December, Mr. Manchin torpedoed efforts to pass Mr. Biden’s $2.2 trillion social safety net, climate and tax package because of concerns over its cost and impact on the economy at a time of rising inflation.His backing is critical because, with Republicans expected to be uniformly opposed, the only way Democrats can pass the package through the evenly divided Senate is to win unanimous backing from their caucus and do so under special budget rules that would shield it from a filibuster and allow it to pass on a simple majority vote.Mr. Schumer has worked to salvage key components of the plan that could meet that test, including a plan released on Wednesday to lower the cost of prescription drugs. Mr. Manchin has repeatedly said such legislation should focus on tax reform and drug pricing, as well as efforts to lower the national debt. The bill is also expected to include some climate and energy provisions, a key priority for Democrats, although they have yet to be agreed upon.Democratic leaders, who hope to move the legislation through the Senate this month, are expected to formally release the Medicare plan in the coming days, according to the officials, who disclosed preliminary details on the condition of anonymity.The fast-track budget process that the party plans to use for the overall package, known as reconciliation, requires legislation to abide by strict budgetary rules enforced by the Senate parliamentarian. The prescription drug legislation has been submitted to the parliamentarian, and Democrats plan to submit the tax increase and Medicare piece in coming days.The portion of Medicare that pays for hospital bills is funded through a special trust fund, largely financed by payroll taxes. But with escalating health care costs and an aging population, current revenues won’t be enough to pay all of Medicare’s hospital bills forever. According to the most recent report from Medicare’s trustees, the fund will be depleted in 2028 without new revenues or spending cuts.The Democrats’ plan would extend an existing 3.8 percent net investment income tax to so-called pass-through income, earned from businesses that distribute profits to their owners. Many people who work at such firms — such as law partners and hedge fund managers — earn high incomes, but avoid the 3.8 percent tax on the bulk of it.The new proposal would apply only to people earning more than $400,000 a year, and joint filers, trusts and estates bringing in more than $500,000, in accordance with Mr. Biden’s pledge that he would not raise taxes for people who make less than $400,000 a year. The proposal is similar to a tax increase Mr. Biden proposed in 2021 to help offset the cost of a set of new spending programs meant to help workers and families, like home health care and child care.Senator Joe Manchin III has said Democrats should focus on tax reform, prescription drug costs and efforts to lower the national debt.Tom Brenner for The New York TimesImposing the new tax on pass-through income would raise about $202.6 billion over a decade, according to an estimate from the Joint Committee on Taxation provided to Senate Democrats and reviewed by The New York Times. Those funds would be funneled directly into the Hospital Insurance Trust Fund, which covers inpatient hospital care, some home health care and hospice care.The Office of the Actuary in the Centers for Medicare & Medicaid Services informed Democratic staff that the additional revenue generated would extend the hospital trust fund’s solvency from 2028 to 2031.“Medicare is a lifeline for millions of American seniors and Senator Manchin has always supported pathways to ensure it remains solvent,” said Sam Runyon, a spokeswoman for Mr. Manchin. “He remains optimistic there is a path to do just that.”She cautioned that an overall deal on a broader climate, tax and spending package has yet to be struck. Some Democrats also hope to include an extension of expanded Affordable Care Act subsidies, which passed on a party-line vote in the $1.9 trillion pandemic aid package in 2021.“Senator Manchin still has serious unresolved concerns, and there is a lot of work to be done before it’s conceivable that a deal can be reached he can sign onto,” Ms. Runyon said.While Mr. Manchin has said he would support additional tax increases, any changes to the tax code must also win the support of Senator Kyrsten Sinema of Arizona, a centrist who opposed many of her party’s initial tax proposals.And while many Democrats are anxious to address climate change before the midterm elections, which may change the balance of power in Washington, Mr. Manchin, who has been protective of his state’s coal industry, continues to haggle over that issue.The heart of the climate plan is expected to be approximately $300 billion in tax credits to expand the development of clean energy like wind, solar and battery storage, a significantly smaller plan that reflects concessions to Mr. Manchin, according to several people familiar with the negotiations.Negotiators are also considering tax credits to incentivize the purchase of electric vehicles, though it is unclear whether Mr. Manchin will support such a provision.Lisa Friedman More

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    Biden’s Curious Talking Point: Lower Deficits Offer Inflation Relief

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    The administration says federal spending trends are helping rein in price increases, but the economic calculus may be more complicated.As Americans deal with the highest inflation in decades, President Biden has declared that combating rising costs is a priority for his administration. Lately, he has cited one policy in particular as an inflation-fighting tool: shrinking the nation’s budget deficit.“Bringing down the deficit is one way to ease inflationary pressures in an economy,” Mr. Biden said this month. “We reduce federal borrowing and we help combat inflation.”The federal budget deficit — the gap between what the government spends and the tax revenue it takes in — remains large. But Mr. Biden has pointed out that it shrank by $350 billion during his first year in office and is expected to fall more than $1 trillion by October, the end of this federal budget year.Rather than stemming from any recent budget measures by his administration or Congress, the deficit reduction largely reflects the rise in tax receipts from strong economic growth and the winding down of pandemic-era emergency programs, like expanded unemployment insurance. And for many experts, that — plus the reality that deficits have a complicated relationship with inflation — makes the budget gap a surprising talking point.“It’s probably not something they should be taking credit for,” Dan White, director of government consulting and fiscal policy research at Moody’s Analytics, said of the Biden team’s emphasis on deficit reduction. The expiration of the programs is mostly “not making things worse,” he said.The Biden administration’s March 2021 spending package helped the economic rebound, but it also meant the deficit shrank less than it otherwise would have last year. In fact, the $1.9 trillion relief plan probably added to inflation, because it pumped money into the economy when the labor market was starting to heal and businesses were reopening.But the White House has explained its new emphasis on deficit reduction and fiscal moderation in terms of timing. Administration officials argue that back in March 2021, the world was uncertain, vaccines were only beginning to roll out and spending heavily on support programs was an insurance policy. Now, as the labor market is booming and consumer demand remains high, the administration says it wants to avoid ramping up spending in ways that could feed further inflation.“Supply chains have created challenges in ramping up production as quickly as we were able to support demand,” said Heather Boushey, a member of the White House Council of Economic Advisers. “The point he’s trying to make is that the plan, moving forward, is responsible and is not aimed at adding to demand.”Moody’s Analytics estimates that inflation will be about a percentage point lower this year than it would be had the government continued spending at last year’s levels.But few people, if anyone, expected those programs to continue. And while it is possible to make a rough estimate about how much fading fiscal support is helping with the inflation situation, as Moody’s did, a range of economists have said that it is hard to know how much it matters for inflation with precision.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.State Intervention: As inflation stays high, lawmakers across the country are turning to tax cuts to ease the pain, but the measures could make things worse. How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.The tie between budget deficits and inflation is also more complex than Mr. Biden’s statements suggest.Deficits, which are financed by government borrowing, are not inherently inflationary: Whether they push up prices hinges on the economic environment as well as the nature of the spending or cutback in revenue that created the budget shortfall.Policies that reduce the deficit could be inflationary, for instance. A big, broadly distributed stimulus that gives direct cash aid to low- and middle-income households could be more than offset in a budget by revenue from large tax increases on the wealthy. But shuffling much of that money to people who are likely to spend it quickly could cause demand to outstrip supply, leading to inflation. Alternatively, spending that would enlarge deficits — like debt-financed investments in energy infrastructure — could reduce inflation over time if the program improves efficiency, expands capacity or makes production cheaper.“I’ll fall back on the typical economist answer and say: It depends,” said Andrew Patterson, a senior international economist at Vanguard.The last time the federal government had a budget surplus was 2001. Since 1970, there have only been four years in which the U.S. government taxed more than it spent. Over that period, there have been times of both high and low inflation.“There’s no simple-minded deficit-to-inflation link — you have to look at both the demand and the supply side of the economy,” said Glenn Hubbard, a professor of finance and economics at Columbia University who headed the Council of Economic Advisers under President George W. Bush. The existence or absence of high inflation has more to do with imbalances in the real economy than with complex budget math. “If aggregate demand grows much faster than aggregate supply, you will see inflation,” he said.Complicating matters in the current situation, the stimulus from the last couple of years is still trickling out into the economy because consumers have amassed savings stockpiles that they are spending down, and because state and local governments continue to use untapped relief funds.And stimulus-stoked demand is far from the only reason prices are rising. Over the past year, because of factory shutdowns and overburdened transit routes, companies have struggled to expand supply to meet booming demand. Shortages of cars, couches and construction materials and raw components have helped to push costs higher.Grocery shoppers in Los Angeles. The White House has argued that a shrinking federal budget deficit will help rein in consumer prices.Alisha Jucevic for The New York TimesRecent global developments are worsening the situation. The Chinese government’s latest lockdowns to contain the coronavirus threaten to shake up factory production and shipping, while the war in Ukraine has caused fuel and food prices to increase.Employers are also raising wages as they scramble to hire in a hot job market, and that increase in labor costs is prompting some companies to raise prices to protect their profit levels. Some companies are even increasing their profits, having discovered that they can charge more in an era of hot demand.The demand drag from fading pandemic relief doesn’t appear to have been large enough to substantially offset those other forces. To date, price gains for a range of goods and services have mostly accelerated.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Biden to Include Minimum Tax on Billionaires in Budget Proposal

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    The tax would require that American households worth more than $100 million pay a rate of at least 20 percent on their full income, as well as unrealized gains in the value of liquid assets like stocks.WASHINGTON — The White House will ask Congress on Monday to pass a new minimum tax on billionaires as part of a budget proposal intended to revitalize President Biden’s domestic agenda and reduce the deficit.The tax would require that American households worth more than $100 million pay a rate of at least 20 percent on their full income, as well as unrealized gains in the value of their liquid assets, such as stocks, bonds and cash, which can accumulate value for years but are taxed only when they are sold.Mr. Biden’s proposal to impose a tax on billionaires is the first time he has explicitly called for a wealth tax. While many in his party have advocated taxes that target an individual’s wealth — not just income — Mr. Biden has largely steered clear of such proposals in favor of increasing the top marginal income tax rate, imposing a higher tax on capital gains and estates, and raising taxes on corporations.The “Billionaire Minimum Income Tax” would apply only to the top one-hundredth of 1 percent of American households, and over half of the revenue would come from those worth more than $1 billion. Those already paying more than 20 percent would not owe any additional taxes, although those paying below that level would have to pay the difference between their current tax rate and the new 20 percent rate.The payments of Mr. Biden’s minimum tax would also count toward the tax that billionaires would eventually need to pay on unrealized income from assets that are taxed only when they are sold for a profit.The tax proposal will be part of the Biden administration’s budget request for the next fiscal year, which the White House plans to release on Monday. In a document outlining the minimum tax, the White House called it “a prepayment of tax obligations these households will owe when they later realize their gains.”“This approach means that the very wealthiest Americans pay taxes as they go, just like everyone else,” the document said.As the administration grapples with worries over rising inflation, the White House also released a separate document on Saturday saying that Mr. Biden’s budget proposal would cut federal deficits by a total of more than $1 trillion over the next decade.The idea of imposing a wealth tax has gained traction since Mr. Biden was elected as Democrats have looked for ways to fund their sweeping climate and social policy agenda and ensure that the wealthiest Americans are paying their fair share.Senator Elizabeth Warren, Democrat of Massachusetts, and Senator Ron Wyden, Democrat of Oregon and the chairman of the Finance Committee, released separate proposals last year that would tax the wealthiest, albeit in different ways. Ms. Warren had championed the idea of a wealth tax in her unsuccessful presidential campaign.The decision by the administration to call for a wealth tax also reflects political realities over how to finance Mr. Biden’s economic agenda.Moderate Democrats, including Senator Kyrsten Sinema of Arizona, have balked at raising the corporate tax rate or lifting the top marginal income tax rate to 39.6 percent from 37 percent, leaving the party with few options to raise revenue.Still, Senator Joe Manchin III, Democrat of West Virginia, slammed the idea of taxing billionaires after Mr. Wyden’s proposal to do so was released, although Mr. Manchin has since suggested he could support some type of billionaires’ tax.Legal questions about such a tax also abound, particularly whether a tax on wealth — rather than income — is constitutional. If Congress approves a wealth tax, there has been speculation that wealthy Americans could mount a legal challenge to the effort. More

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    Modern Monetary Theory Got a Pandemic Tryout. Inflation Is Now Testing It.

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    The sun was sinking low over Long Island Sound as Stephanie Kelton, wearing the bright red suit jacket she had donned to give a virtual guest lecture to university students in London that morning, perched before a pillow fort she had constructed atop the heavy wooden desk in her home office.The setup was meant to keep out noise as she recorded the podcast she co-hosts, a MarketWatch production called the “Best New Ideas in Money.” The room was hushed except for Ms. Kelton, who bantered energetically with the producers she was hearing through noise-blocking headphones, sang a Terri Gibbs song and made occasional edits to the script. At one point, she muttered, “That sounds like Stephanie.”What Stephanie Kelton sounds like, circa early 2022, is the star architect of a movement that is on something of a victory lap. A victory lap with an asterisk.Ms. Kelton, 52, is the most familiar public face of Modern Monetary Theory, which posits that if a government controls its own currency and needs money — to make sure its citizens have food and places to live when, say, a global pandemic pushes many out of work — it can just print it, as long as its economy has the ability to churn out the needed goods and services.In the M.M.T. view of the world, “How will you pay for it?” is a vapid policy question. Real-world resources and political priorities determine how much lawmakers can and should spend.It is an idea that was forged, and put to something of a test, during a low-inflation era.When Ms. Kelton’s book, “The Deficit Myth,” was published in June 2020 and shot onto best seller lists, inflation had been weak for decades and had dropped below 1 percent as consumers retrenched in the pandemic. The government had begun to spend rapidly to try to prop up flailing households.When Ms. Kelton appeared on a Bloomberg podcast episode, “How M.M.T. Won the Fiscal Policy Debate,” in early 2021, inflation had bounced back to around 2 percent.But by a chilly January afternoon, as ducks flew over the frosty estuary outside Ms. Kelton’s house near Stony Brook University, where she teaches, inflation had rocketed up to 7 percent. The government’s debt pile has exploded to $30 trillion, up from about $10 trillion at the start of the 2008 downturn and $5 trillion in the mid-1990s.The good news: The government has had no trouble selling bonds to fund its spending, contrary to the direst projections of deficit scolds.The bad news: Some economists blame big spending in the pandemic for today’s rapid price increases. The government will release fresh Consumer Price Index data this week, and it is expected to show inflation running at its fastest pace since 1982.And that may be why Ms. Kelton, and the movement she has come to represent, now seem anxious to control the narrative. The pandemic spending wasn’t entirely consistent with M.M.T principles, they say — it wasn’t assessed carefully for its inflationary effects as it was being drawn up, because it was crisis policy. But the situation has underlined how hard it is to know just where the economy’s constraints lay, and how difficult it is to fix things once you run into them.Last summer, Ms. Kelton called inflation a temporary sign of “growing pains.” By the fall, she painted it as a good problem to solve, compared with a continued weak economy. As it lingers, she has argued that diagnosing what is causing it is key.“Can we blame ‘MMT’ for the run-up in inflation?” she tweeted rhetorically last month, just hours before her podcast recording.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“Of course not.”Emon Hassan for The New York TimesThe economy is the limitTo understand how M.M.T. fits in with other dominant ways of thinking, it’s helpful to take a trip to the beach.In economics, there’s a school of thought sometimes called “freshwater.” It’s the set of ideas that became popular at inland universities in the 1970s, when they began to embrace rational markets and limited government intervention to fight recessions. There’s also “saltwater” thinking, an updated version of Keynesianism that argues that the government occasionally needs to jump-start the economy. It has traditionally been championed in the Ivy League and other top-ranked schools on the coasts.You might call the school of thought Ms. Kelton is popularizing, from a bay that feeds into the East River, brackish economics.M.M.T. theorists argue that society should feel capable of spending to achieve its goals to the extent that there are resources available to fulfill them. Deficit spending need not be constrained to recessions, even theoretically. Want to build a road? No problem, so long as you have asphalt and construction workers. Want to feed children free lunches? Also not a problem, so long as you have the food and the cafeteria workers.What became Modern Monetary Theory began to percolate among a small group of academics when Ms. Kelton, a former military brat and one-time furniture saleswoman, was a graduate student.She had a gap period between graduating with a bachelor’s degree from California State University, Sacramento and attending Cambridge University on a Rotary scholarship, and her college economics professor recommended that she spend the time studying with L. Randall Wray, an early pioneer in the set of ideas.They hit it off. She remained in Mr. Wray’s circle, and he — and Warren Mosler, a hedge fund manager who had written a book on what we get wrong about money — convinced her that the way America understood cash, revenues and budgeting was all backward.Ms. Kelton earned her doctorate at The New School, long a booster of out-of-mainstream economic thinking, and went on to teach at the University of Missouri-Kansas City. She, Mr. Wray, who was there at the time, and their colleagues mentored doctoral students and began to write academic papers on the new way of thinking.But academic missives reached only a small circle of readers. After the 2008 financial crisis punched a hole in the economy that would take more than a decade to fill, Ms. Kelton and her colleagues, invigorated with a new urgency, began a blog called “New Economic Perspectives.” It was a bare bones white, red and black layout, using a standard WordPress template, that served as a place for M.M.T. writers to make their case (and, in its early days, featured a #Occupy[YourCityHere] tab).The theory picked up some fervent followers but limited popular acceptance, charitably, and outright derision, uncharitably. Mainstream economists panned it as overly simplistic. Many were confused about what it was arguing.“I have heard pretty extreme claims attributed to that framework and I don’t know whether that’s fair or not,” Jerome H. Powell, the Fed chair, said in 2019. “The idea that deficits don’t matter for countries that can borrow in their own currency is just wrong.”Ms. Kelton kept the faith. She and her colleagues held conferences, including one in 2018 at The New School where she gave a lecture on “mainstreaming M.M.T.”Rohan Grey organized the conference and a media reception afterward at an Irish pub (“‘Shades of Green,’ monetary pun intended,” he said). It was attended by organizers, academics, “lay people” and lots of journalists. At the happy hour — which lasted until 1 a.m. — Ms. Kelton was mobbed when she walked in the door. “She was already on her way to super celebrity status at that point,” said Mr. Grey, an assistant professor at Willamette Law.When she gave presentations on her ideas, Ms. Kelton would occasionally display a quote often attributed to Mahatma Gandhi: “First they ignore you, then they laugh at you, then they fight you. Then you win.”And her star was rising more broadly. She advised Bernie Sanders’ presidential campaigns in 2016 and 2020, getting to know the Vermont senator. He never fully publicly embraced M.M.T., but he nevertheless advanced policies — like Medicare for All — that reflected its ideals.She amassed a following of tens of thousands, later growing to 140,000, on Twitter. Her first handle, @deficitowl, prompted ardent fans to gift her wise bird figurines, some of which are still on display in her home office. She cultivated a small coterie of prominent journalists who were interested in the idea, most notably Joe Weisenthal at Bloomberg. She signed a book deal. She was regularly talking to Democratic lawmakers, sometimes in groups.Her idea percolated through Washington’s media and liberal policy circles. Mainstream economic predictions that huge debt loads would come back to haunt nations like Japan had not played out, the anemic rebound from 2008 had scarred society and called the size of the crisis response into question. Ms. Kelton and her colleagues were ensuring that their theory on benign deficits was an ever-present feature of the blossoming debate.Then the pandemic hit, and suddenly the theoretical question of just how much the government could spend before it ran into limits faced a real-world experiment.The $1.9 Trillion FloorWithout thinking about paying for it, Donald J. Trump’s government quickly passed a $2.3 trillion relief package in late March 2020. In December, it followed that up with another $900 billion. President Biden took office in early 2021, and promptly added $1.9 trillion more.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    U.S. National Debt Tops $30 Trillion as Borrowing Surged

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    The record red ink, fueled by spending to combat the coronavirus, comes as interest rates are expected to rise, which could add to America’s costs.WASHINGTON — America’s gross national debt topped $30 trillion for the first time on Tuesday, an ominous fiscal milestone that underscores the fragile nature of the country’s long-term economic health as it grapples with soaring prices and the prospect of higher interest rates.The breach of that threshold, which was revealed in new Treasury Department figures, arrived years earlier than previously projected as a result of trillions in federal spending that the United States has deployed to combat the pandemic. That $5 trillion, which funded expanded jobless benefits, financial support for small businesses and stimulus payments, was financed with borrowed money.The borrowing binge, which many economists viewed as necessary to help the United States recover from the pandemic, has left the nation with a debt burden so large that the government would need to spend an amount larger than America’s entire annual economy in order to pay it off.Some economists contend that the nation’s large debt load is not unhealthy given that the economy is growing, interest rates are low and investors are still willing to buy U.S. Treasury securities, which gives them safe assets to help manage their financial risk. Those securities allow the government to borrow money relatively cheaply and use it to invest in the economy.For years, presidents have promised to limit federal borrowing and bring down the nation’s budget deficit, which is the gap between what the nation spends and what it takes in. Under President Bill Clinton, the United States actually ran a budget surplus between 1998 and 2001.But taming deficits had fallen out of fashion in recent years, including during the Trump administration, when lawmakers blew through budget caps and borrowed money to fund tax cuts and other federal spending.Now, deficit concerns have resurfaced, helping to stall negotiations over President Biden’s $2 trillion safety net and climate spending proposal. Senator Joe Manchin III of West Virginia, a Democrat whose vote is key to passing Mr. Biden’s package, cited “staggering debt” as a reason he could not support the legislation.Senator Joe Manchin on Capitol Hill last month.Tom Brenner for The New York TimesThe lingering pandemic has slowed the momentum of the economic recovery, fueling inflation rates unseen since the early 1980s and raising the prospect of higher interest rates, which could add to America’s fiscal burden.“Hitting the $30 trillion mark is clearly an important milestone in our dangerous fiscal trajectory,” said Michael A. Peterson, the chief executive officer of the Peter G. Peterson Foundation, which promotes deficit reduction. “For many years before Covid, America had an unsustainable structural fiscal path because the programs we’ve designed are not sufficiently funded by the revenue we take in.”Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.The gross national debt represents debt held by the public, such as individuals, businesses and pension funds, as well as liabilities that one part of the federal government owes to another part.Renewed concerns about debt and deficits in Washington follow years of disregard for the consequences of big spending. During the Trump administration, most Republicans ceased to be fiscal hawks and voted along party lines in 2017 to pass a $1.5 trillion tax cut along with increased federal spending.While Republican lawmakers helped run up the nation’s debt load, they have since blamed Mr. Biden for putting the nation on a rocky fiscal path by funding his agenda. After a protracted standoff in which Republicans refused to raise America’s borrowing cap, threatening a first-ever federal default, Congress finally agreed in December to raise the nation’s debt limit to about $31.4 trillion.In January 2020, before the pandemic spread across the United States, the Congressional Budget Office projected that the gross national debt would reach $30 trillion by around the end of 2025. The total debt held by the public outpaced the size of the American economy last year, a decade faster than forecasters projected.The nonpartisan office warned last year that rising interest costs and growing health spending as the population ages would increase the risk of a “fiscal crisis” and higher inflation, a situation that could undermine confidence in the U.S. dollar.The Biden administration has said the $1.9 trillion pandemic relief package the Democrats passed last year was a necessary measure to protect the economy from further damage. Treasury Secretary Janet L. Yellen has argued that such large federal investments are affordable because interest costs as a share of gross domestic product are at historically low levels thanks to persistently low interest rates.But that backdrop could start to change as the Federal Reserve prepares to raise interest rates, which have been set near-zero since the start of the pandemic, to curb inflation.The Fed indicated last week that it was on track to begin increasing rates at its next meeting in March. Investors are predicting the central bank could usher in five rate increases this year, bringing rates to a range of 1 to 1.25 percent.Trillions in federal spending has left the United States approaching levels of red ink not seen since World War II.Sarah Silbiger/ReutersThe Fed has also been keeping long-term interest rates low by buying government-backed debt and holding those securities on its balance sheet. Those purchases are set to wrap up next month, and last week, the Fed signaled it planned to “significantly” shrink its bond holdings.Esther L. George, the president of the Federal Reserve Bank of Kansas City, suggested during a speech this week that the Fed’s big bond holdings might be lowering longer-term interest rates by as much as 1.5 percentage points — nearly cutting the interest rate on 10-year government debt in half. While shrinking the balance sheet risks roiling markets, she warned that if the Fed remained a big presence in the Treasury market, it could distort financial conditions and imperil the central bank’s prized independence from elected government.Inflation F.A.Q.Card 1 of 6What is inflation? More