Subject: Attention, middle class: taxes are going up (AEI Economics Ledger) If you have trouble reading this

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Chart of the week: Spending outpaces revenue (by a lot) Podcast of the week: Are less-skilled immigrants a drag or boon to GDP?

Fiscal policy
NEW RESEARCH, CHARTS Six long-run tax and budget realities. Michael Strain and Alan Viard: The middle class, as broadly defined by today's political debate, will bear much of the burden of addressing the fiscal imbalance through entitlement benefit cuts and tax increases. Contrary to the beliefs or hopes of some policymakers, the long-run fiscal imbalance cannot be closed solely by taxing the top 2 or 3 percent of the income distribution or by gutting safety net programs for the bottom 20 percent. Big government makes us (much) poorer. Mark Perry: Federal regulations have lowered real GDP growth by 2% per year since 1949 and made America 72% poorer. Rethinking tax breaks for homeowners. Sita Slavov: On balance, there is no clear evidence to suggest that homeownership causes stronger communities. NEW RESEARCH A new vision for Social Security. Andrew Biggs: Denial and hope won't save retirees and the disabled from a 25% benefit cut when Social Security becomes insolvent in the early 2030s.

Immigration
The Senate approved sweeping immigration reform on Thursday evening. The legislation now rests in the House. From the AEI archives: Immigration helps economic growth. Madeline Zavodny: Immigrants fill vital niches in the labor market; they go where the jobs are; they contribute to innovation and business creation; they revitalize declining areas; and they slow the aging of the American workforce.

Fed talk
The markets bumpy week is ending on a high note, thanks to Federal Reserve officials calming markets after scares that quantitative easing tapering would begin sooner than expected. NEW RESEARCH, CHARTS Troubling taper talk from central banks. John Makin: Make no mistake about it: right now, tighter money, or the expectation of it, will exacerbate disinflationary trends and movement toward higher unemployment while increasing the volatility in financial markets. Better to leave well enough alone than to risk another global recession. Dont hold back. James Pethokoukis: It appears the Fed has now made its second significant error of the Bernanke era, a blunder that merits a thorough thrashing.

Too big to fail

The House Financial Services Committee continued to investigate if too big to fail exists in its hearing on Wednesday. Taming the megabanks. James Pethokoukis: To defend free markets and avoid another disastrous crisis, we need policies that would shrink and break up America's biggest banks. From the AEI archives: Dont break up the banks yet. Peter Wallison provides five pointed questions for break-up-the-banks advocates. Alex Pollock turns break-up-the-banks logic on its head in applying it to the Federal Reserve.

Around the world

NEW RESEARCH How to revitalize the Japanese economy. Niall Ferguson, Lawrence Lindsey, and Daniel Loeb: Prime Minister Shinzo Abe is attempting an aggressive reform program in order to revitalize the Japanese economy. Can he succeed? We believe he can, but only if he aims his third arrow of structural reform at the right target. G8 recap. Claude Barfield: Nostalgia does not provide a solid foundation for 21st century foreign or economic policy. Yet we heard a great deal of it last week.

Interesting reads
One of the biggest losers of the Great Recession. Aparna Mathur, Daniel Hanson, and Peter Hansen: Those over the age of 55 were particularly hard hit by unemployment. . . .Addressing the problem of long-term unemployment necessarily involves tackling the challenge of helping older workers find jobs. Where was the tea party? The Wall Street Journals Peggy Noonan shares Stan Veugers research on why IRS targeting of the tea party very well may have tipped the 2012 election. Top Romney advisor calls for third political party. The Washington Posts Matt Miller discusses Glenn Hubbards new book, Balance.

Mark your calendar

7.4 Independence Day; all markets are closed. 7.10 Federal Open Market Committee report released 7.31 AEI Event: International conference on collateral risk: Moderating housing cycles and their systemic impact @AEIecon Sign up for a weekly copy of the LEDGER here. Read more from the American Enterprise Institute economic policy team at www.aei.org. Questions or comments about what you read? Contact Abby at abby.mccloskey@aei.org. American Enterprise Institute for Public Policy Research | 1150 Seventeenth Street, NW, Washington, DC 20036 | 202.862.5800 | www.aei.org If you were forwarded this message, click here to subscribe to AEI newsletters. Click here to unsubscribe or manage your subscriptions.