What Americans can expect from Biden's economic plan

Maya MacGuineas, Committee for a Responsible Federal Budget President, joined Yahoo FInance Live to break down what investors should expect from Biden's economic plan.

Video Transcript

ADAM SHAPIRO: But we're also going to keep an eye on how do you pay for all of this? Because there is this stimulus debate. We heard hints of this already during the testimony and the questions being asked of Janet Yellen. So let's invite into the stream our next guest. That would be Maya MacGuineas. She is the Committee for a Responsible Federal Budget president. It's good to see you again, Maya. And very simply, I'm--

MAYA MACGUINEAS: Great to be with you.

ADAM SHAPIRO: --going to throw out a number that makes everybody clutch the pearls and scream in horror. But total US debt over $27 trillion. GDP is going to come in for 2020 around 20.8, maybe $21 trillion. So we're already 100% greater, more than 100%, of total debt to GDP. So those who are asking, how do you pay for it, what do you say to them?

MAYA MACGUINEAS: So I completely agree with the points that they're making, that you just made-- that our fiscal situation is bad. It's really bad. Our debt is at near record levels. It's headed towards record levels. And even with these incredibly low interest rates, which people keep talking about, we're on track to pay interest payments of almost $4 trillion over the next decade. So it's bad.

So we do need to do something about it. But not yet. And I wish it were time. But we're still-- and you heard this a lot in the Yellen hearing today-- I think the first priority remains, how do we make sure the economy is stable? First priority in all of that is fighting the pandemic. Second is making sure we can fill in any of the output gap. And then we pivot and focus on the debt. So there's three pieces of this.

What I heard today in the hearing was very encouraging, because people understood all of those components were necessary. And I think the big focus is still going to be, for the next few months, this next package that President-elect Biden has put forward-- where it goes, whether they bring it down and target it a little bit more-- before we start hearing serious proposals about how to get that out of control debt back under control when the time comes.

SEANA SMITH: So Maya, when that time comes-- I'm going to flip that question to you, then-- what is the best way to go about it? What are the steps that you think need to be taken in order to get it under control?

MAYA MACGUINEAS: Yeah, unfortunately it's the same things we've needed to do for not just years, but decades, we've known that are out there, and we've delayed. We have a situation right now where in the next 10 years, four of our government trust funds are going to be in a place where they don't have money to pay full benefits. The two largest being Medicare Part A and Social Security. We need to deal with our retirement costs and our health care costs.

On top of that, our revenues are much lower than they have been historically and other countries' are. We've had very large tax cuts-- actually, not one, but two in the past years when the economy was so strong that added to the debt. We're going to need to find new revenues. Those could come from broadening the tax base and getting rid of a lot of the-- $1 trillion a year in tax breaks. We have a carbon tax. There are a lot of different proposals there.

And then a final thought that I'm just working on right now is, is there some kind of a COVID surtax, where we could take the amount that we borrowed to deal with COVID-- again, correctly-- but start to come up with a plan to repay specifically that amount of money while we're getting those other things gradually phased in. You don't want austerity. You don't want quick shocks to the economy.

ADAM SHAPIRO: Maya?

MAYA MACGUINEAS: But you want gradual changes.

ADAM SHAPIRO: OK, I'm going to break down, I think, what you just said regarding the COVID surtax. Would you raise taxes, say, on the people who've benefited during the pandemic economically, whether it be through greater stock appreciation, or Amazon and the tech companies, which have seen themselves grow, Zoom, that kind of thing?

And then I just have to throw this in there. What do you say to-- as a reporter for most of my adult life, we're talking three, four decades, I've heard this, that the bill will come due. And yet it hasn't come due. What do you say to people about that?

MAYA MACGUINEAS: Yeah, OK. Two great questions. On the first one, yes, many people have really fared quite well during this downturn. There are people who have lost their jobs, endured tremendous hardship, and there are others of us who have been able to work from home and been fine. Many companies have gone under, and there are others which have just skyrocketed.

Now, the good news is good news. It's not a punitive thing. But there is an opportunity for us to recoup some of the borrowing from either companies or individuals who have fared better during this real crisis. And that's just a way to go at this incrementally. Let's take some of these pieces of the fiscal challenges and do them bit by bit. So deal with the COVID borrowing, deal with Social Security, deal with taxes. Because we don't have a political environment [AUDIO OUT] which is the big grand bargain.

On your second question, that's right. Interest rates have stayed low. And we haven't felt the direct pain of all this borrowing. But it is showing up already in ways we're not really seeing. We are vulnerable to competition with China, unquestionably, because of our unhealthy fiscal situation. We are more vulnerable to other kinds of security changes, threats that are out there towards us.

And importantly, we have fallen behind on updating our social contract, which we need to change to deal with the big, big changes that are going on in the workforce due to technology, demographic shifts. We are just letting the house crumble instead of fixing it. And the biggest crumbling is going on in the foundation where we're not seeing it. But it is a problem. So low interest rates, which won't stay low forever, are almost an enabler that are masking how much we're going to have to do to get our revenue and spending back in alignment.