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Articles by Kent Smetters
Dilution vs. Risk Taking: Capital Gains Taxes and Entrepreneurship
We thank Alan Auerbach, Frederick Bennhoff, Anmol Bhandari, David Burgherr, Harold Cole, Ashley Craig, Emanuel Hansen, Jonathan Heathcote, Xavier Jaravel, Louis Kaplow, Wojciech Kopczuk, Moritz Kuhn, Ellen McGrattan, Dominik Sachs, Emmanuel Saez, David Seim, Kjetil Storesletten, Harald Uhlig, Nicolas Werquin, Danny Yagan, Eric Zwick, and seminar participants at Australian National University, Barcelona, BU, CESifo, Chicago Fed, CREST, EEA, Frankfurt, Fribourg, LSE, Mannheim, Munich, NBER...
Counterpoint
Federal debt can grow over time but not faster than GDP in the long run. Revenue must cover spending plus interest owed on the debt. Calculating the tax increase required to stabilize the debt-GDP ratio after 30 years requires estimating primary deficits (not including interest payments), borrowing rates r and growth rate g for many years after the Congressional Budget Office's (CBO, 2025a) 30-year projection. CBO never reported a stabilizing rate. I am sure that Edelberg et al.
The Economic Effects of President Trump’s Tariffs
The Economic Effects of President Trump’s Tariffs Many trade models fail to capture the full harm of tariffs. PWBM projects Trump’s tariffs (April 8, 2025) will reduce long-run GDP by about 6% and wages by 5%. A middle-income household faces a $22K lifetime loss. These losses are twice as large as a revenue-equivalent corporate tax increase from 21% to 36%, an otherwise highly distorting tax.Many trade models fail to capture the full harm of tariffs.
United States federal indebtedness and fiscal policy trade‐offs
INTRODUCTION Federal debt held by the public stood at $26.2 trillion at the end of 2023, almost as large as U.S. Gross Domestic Product (GDP). Such a high debt level resulted from consistently high federal deficits after the Budget Enforcement Act of 1990 was abandoned in 2002, and Congress enacted several spending increases and tax cuts.
Why Don’t Elite Colleges Expand Supply?
We are grateful to Peter Arcidiacono, Christopher Avery, Patrick Bayer, Thomas Dee, Rebecca Diamond, William Dougan, Esther Duflo, Gilles Duranton, Susan Dynarski, Fernando Ferreira, Robert Fleck, Chao Fu, Austan Goolsbee, Eric Hanushek, Arnold Harberger, Gary King, Brian Knight, Annemarie Korte, Ilyana Kuziemko, Jonathan Levin, Bridget Terry Long, Richard Murnane, Christopher Neilson, James Poterba, Sean Reardon, Thomas Sargent, Todd Sinai, Charles Thomas, Susan Wachter, Miguel Urquiola, and...
Lapse-Based Insurance
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Stay-at-home orders and second waves: a graphical exposition
Abstract Integrated epidemiological-economics models have recently appeared to study optimal government policy, especially stay-at-home orders (mass “quarantines”). But these models are challenging to interpret due to the lack of closed-form solutions. This note provides an intuitive and graphical explanation of optimal quarantine policy. To be optimal, a quarantine requires “the cavalry” (e.g., mass testing, strong therapeutics, or a vaccine) to arrive just in time, not too early or too late.
Is Warren's Wealth Tax Proposal Too Optimistic?
Elizabeth Warren's plan to tax the ultra-rich could raise much less revenue than projected while also depressing GDP and wages.
Your Money: June 25, 2019
More Bio: As Executive Editor of Wisebread & an anchor for WHYY/ NPR, Janet Al-Saad Alvarez is a formidable consumer advocate, personal finance and investing expert. She appears frequently in national media, including the Today Show, Good Morning Washington, ABC and CBS News, Bloomberg TV, Cheddar TV, and more, sharing her insights for informed consumer choice and financial literacy.
Alan Greenspan: Can the U.S. Economy Stay on Top?
Alan Greenspan: Can the U.S. Economy Stay on Top? In a recent interview, former Fed Chair Alan Greenspan discussed recession fears, China's growth and what the U.S. can learn from Sweden. Read Full Article »
7 insider tips on paying for college
First, the bad news. In the face of massive budget deficits, the government is cutting back on how much they are helping to subsidize college education. Even worse, college costs are increasing fast. The average public four-year college now costs nearly $17,000 per year, while the average annual cost for a private nonprofit college is about $42,000. These costs continue to increase rapidly and some experts predict they will double within 10 years. The good news?
The White House Budget: What's the Reality?
Undue optimism on the budget deficit and low visibility on the pain points for underprivileged Americans seem to be the hallmarks of the Trump administration’s $4.4 trillion budget proposal for fiscal year 2019 that was presented on Monday this week.
Don’t let the critics scare you away from passive investing
Passively managed mutual funds have attracted considerable assets in recent years, as they have consistently outperformed a majority of actively traded funds, net of fees. Backlash by active managers has been sharp, with one famed hedge-fund manager, Paul Singer, arguing that passive investing is “destructive to the growth-creating and consensus-building prospects of free market capitalism.” Passive indexing follows a fixed investment rule while active investing follows a manager’s discretion.
Save for retirement, or pay student loans? It depends on the math
Recent college graduates, hopefully you’ve obtained your first job that offers a 401(k), and have a little cash set aside for emergencies. But you also likely are facing starting to pay back some student debt. So, should you focus on saving for retirement or paying off student loans faster? This is the most common question that millennials ask me. Even some experts seem to disagree on the answer, potentially due to conflicts of interest.
Why Critics of Passive Investing Are Wrong
Kent Smetters is a professor at the Wharton School of the University of Pennsylvania. He blogs at KentOnMoney.com and appears on “Your Money” on SiriusXM Radio. Passively managed mutual funds have attracted considerable assets in recent years, as they have consistently outperformed a majority of actively traded funds, net of fees.
How to Maximize Retirement Savings While Paying Down School Debt
Kent Smetters is a professor at the Wharton School of the University of Pennsylvania and director of the Penn Wharton Budget Model. He also blogs at KentOnMoney.com and appears on “Your Money” on SiriusXM Radio. Recent college graduates, hopefully you’ve obtained your first job that offers a 401(k), and have a little cash set aside for emergencies. But you also likely are facing starting to pay back some student debt. So, should you focus on saving for retirement or paying off student loans faster?
Pay Off Student Loans or Save for Retirement? The Answer May Surprise You
Kent Smetters is a professor at the Wharton School of the University of Pennsylvania and director of the Penn Wharton Budget Model. He also blogs at KentOnMoney.com and appears on “Your Money” on SiriusXM Radio. Recent college graduates, hopefully you’ve obtained your first job that offers a 401(k), and have a little cash set aside for emergencies. But you also likely are facing starting to pay back some student debt. So, should you focus on saving for retirement or paying off student loans faster?
What's Worse Than an E/R Visit? "Surprise" Medical Bills
Recently, on an episode of my radio show, " Your Money," I spoke with Dr. Orly Avitzur, medical director of Consumer Reports, about how to avoid excessive and unexpected medical costs. Many people think that if they have health insurance, they don't have to worry about medical bills, but out-of-pocket costs can really add up, whether it be a co-pay or a portion of a medical bill that is not covered by insurance.
This Guy Quit Working, Learned to Travel on the Cheap & Never Looked Back
Now that it's summertime, you're probably itching for a vacation and wondering how you can afford it. Recently, on an episode of my radio show, "Your Money," I spoke with Matt Kepnes, a travel expert and New York Times best-selling author of How to Travel the World on $50 a Day. Matt is also the founder of the budget travel site, Nomadic Matt, which provides steps that will save you time and money and have you traveling sooner. A trip to Thailand in 2005 changed Matt's life.
Dynamic Analysis of Tax Plans: An Update
This paper gives an overview of the TPC’s methodology for dynamic analysis of tax proposals. Following the practice of official government estimators, we use a Keynesian model to estimate the short-term effects of policy changes on output relative to its full-employment level. That model assumes tax policy can influence the economy by changing the demand for goods and services.
An investment that's a safer bet than Social Security
Here's an important tip for year-end financial planning: Getting started now will allow you to secure a safe source of savings as well as tax benefits for the current year. But you might want to hurry because the clock is ticking if you want to invest before the end of the calendar year. Imagine an investment backed by the full faith and credit of the US Treasury. Its nominal interest rate is about the same as a high-yield CD, but this rate automatically increases with higher inflation.
Dynamic Scoring of Tax Plans
This paper gives an overview of the methodology behind the short- and long-run dynamic scoring of Hillary Clinton’s and Donald Trump’s tax plan proposals. Following the practice of official government estimators, we use a Keynesian model to estimate the short-term effects of policy changes on output relative to its full-employment level. That model assumes tax policy can influence the economy by changing the demand for goods and services.
Big data for government good: using analytics for policymaking
Big Data and analytics are driving advancements that touch nearly every part of our lives. From improving disaster relief efforts following a storm, to enhancing patient response to specific medications to criminal justice reform and real-time traffic reporting, Big Data is saving lives, reducing costs and improving productivity across the private and the public sector.
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