Designing Federal Budget Policy to Spur Economic Growth

Federal budget policy should focus on raising incomes for lower- and middle-income people, because they have benefited little from economic growth in the past few decades. That goal would be advanced by maintaining federal investment as a share of total output, reforming the tax code, encouraging innovation, reducing federal debt slowly, and reducing uncertainty about future policy. However, the likely effects of budget policy on income growth should not be exaggerated.