Essay: Countries facing growing budget deficits
Most affluent countries face growing budget deficits because of their aging populations and other factors. Reducing these deficits will probably require higher taxes and deep cuts in broad based health and pension benefits.
After taking such difficult steps, there is likely to be little political support for expanding income transfers to low income families. If there is new spending, the political incentive will be to focus benefits on families just below the poverty threshold in order to maximize the number of persons pulled out of poverty and, hence, the political credit This is troubling in terms of equity because families in deep poverty, with incomes at or below 50 percent of the threshold, may get little or no help. It is also troubling on the efficiency side because marginal tax rates will rise to high levels for families near the threshold, thereby creating even worse poverty and unemployment traps.
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