Deficit reduction in the United States

CBO reported in July 2014 that the continuation of present tax and spending policies for the long-run (into the 2030s) results in a budget trajectory that causes debt to grow faster than GDP, which is "unsustainable."

Further, CBO reported that high levels of debt relative to GDP may pose significant risks to economic growth and the ability of lawmakers to respond to crises.

[20][21] The CBO reported several types of risk factors related to high and rising debt levels in a July 2010 publication: Reducing the budget deficit by tax increases or spending cuts may slow economic growth.

[54] Senator Elizabeth Warren supports an "Ultra-Millionaire Tax" on the 75,000 richest families in the U.S. (those with incomes greater that $50 million) that would result in an estimated $250 billion per year in federal revenue.

These agencies have indicated that under current law, sometime between 2030 and 2040, mandatory spending (primarily Social Security, Medicare, Medicaid, and interest on the national debt) will exceed tax revenue.

[57] CBO wrote in November 2012: "The aging of the baby-boom generation portends a significant and sustained increase in coming years in the share of the population that will receive benefits from Social Security and Medicare and long-term care services financed through Medicaid.

Without significant changes in the laws governing Social Security, Medicare, and Medicaid, those factors will boost federal outlays as a percentage of GDP well above the average of the past four decades – a conclusion that applies under any plausible assumptions about future trends in demographics, economic conditions, and health care costs.

Topics included obesity, defensive medicine or tort reform, rationing, a shortage of doctors and nurses, intervention vs. hospice, fraud, and use of imaging technology.

These are measured over a 75-year period and infinite horizon by the program's Trustees: CBO estimated in January 2012 that raising the full retirement age for Social Security from 67 to 70 would reduce outlays by about 13%.

[65] Raising the retirement ages in one or both programs brings forth a host of questions around fairness, as some professions are harder to sustain for elderly (e.g., manual labor) and the poor do not have as long a life expectancy as the rich.

Historian Niall Ferguson described the risk that foreign investors would demand higher interest rates as the U.S. debt levels increase over time in a November 2009 interview.

Economic growth offers the "win-win" scenario of higher employment, which increases tax revenue while reducing safety net expenditures for such things as unemployment compensation and food stamps.

Economic growth and job creation are affected by globalization, technology change or automation, international competition, education levels, demographics, trade policy, and other factors.

Conservative organizations such as the U.S. Chamber of Commerce have advocated growth and employment strategies based on a reduction in government regulations; empowering state education systems; teacher pay for performance strategies; training programs better focused on available jobs; creation of a private and public infrastructure bank to finance investments; tax rate reductions for corporations; free trade agreements; and reducing labor union power.

[74][75] Lawrence Summers, Matthew Yglesias and other economists state that at such low rates, government debt borrowing saves taxpayer money, and improves creditworthiness.

She explained further that job growth between 2000 and 2007 was only half what it had been in the preceding three decades, pointing to several studies by other economists indicating globalization and technology change had highly negative effects on certain sectors of the U.S. workforce and overall wage levels.

IMF managing director Christine Lagarde wrote in August 2011: "For the advanced economies, there is an unmistakable need to restore fiscal sustainability through credible consolidation plans.

And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.

He wrote: "To address both the near- and longer-term [fiscal] issues, the Congress and the Administration should consider replacing the sharp, front-loaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run.

[94] A Centre for Economic Policy Research paper agrees with the conclusion that, "no real liability is created by new fiat money creation, and therefore public debt does not rise as a result.

They included four scenarios designed to prevent the public debt to GDP ratio from exceeding 60%: As of November 2014, there was no major legislation scheduled to expire or take effect projected by CBO to have a material net impact on the budget deficit.

His January 2010 version of the plan includes partial privatization of Social Security, the transition of Medicare to a voucher system, discretionary spending cuts and freezes, and tax reform.

[107] The CBO did an analysis of the resolution (a less rigorous evaluation than full scoring of legislation), estimating that the Path would balance the budget by 2030 and reduce the level of debt held by the public to 10% GDP by 2050, vs. 62% in 2010.

[108] Economist Paul Krugman called it "ridiculous and heartless" due to a combination of income tax rate reductions (which he argued mainly benefit the wealthy) and large spending cuts that would affect the poor and middle classes.

"[117] President Obama outlined his strategy for reducing future deficits in April 2011 and explained why this debate is important: "...as the Baby Boomers start to retire in greater numbers and health care costs continue to rise, the situation will get even worse.

Specific plan elements included: The CBO reported in September 2011 that: "Given the aging of the population and rising costs for health care, attaining a sustainable federal budget will require the United States to deviate from the policies of the past 40 years in at least one of the following ways: During testimony before the Congressional Joint Deficit Reduction Committee in September 2011, CBO Director Douglas Elmendorf counseled members of Congress to make decisions about the role of the federal government, then make policy choices to obtain the revenue necessary to fund those roles, to put the U.S. on a sustainable fiscal path.

Now, there is only one way to square this circle short of magic, and that is to borrow money, and that is what we have done for decades now at the local, state and federal level...So, the next time you accuse Washington of being irresponsible, save some of that blame for yourself and your friends.

"[141] Bernanke wrote in April 2010: "Thus, the reality is that the Congress, the Administration, and the American people will have to choose among making modifications to entitlement programs such as Medicare and Social Security, restraining federal spending on everything else, accepting higher taxes, or some combination thereof.

Economist Bruce Bartlett wrote in December 2009: "Nevertheless, I can't really blame members of Congress for lacking the courage or responsibility to get the budget under some semblance of control.

"[146] A Bloomberg/Selzer national poll conducted in December 2009 indicated that more than two-thirds of Americans favored tax increases on the rich (individuals making over $500,000) to help solve the deficit problem.

CBO: U.S. Federal spending and revenue components for fiscal year 2023. Major expenditure categories are healthcare, Social Security, and defense; income and payroll taxes are the primary revenue sources.
The actual and projected budget deficit of the United States federal budget by the CBO as of 2023.
Revenue and Spending of the Federal Government History
The amount of U.S. public debt, measured as a percentage of GDP, held by the public since 1900
CBO: Revenue and Expense as % GDP. Deficits are projected to grow as a percentage of GDP as the country ages and healthcare costs rise faster than the economy.
Congressional Budget Office (CBO) baseline scenario comparisons: June 2017 (essentially the deficit trajectory that President Trump inherited from President Obama), April 2018 (which reflects Trump's tax cuts and spending bills), and April 2018 alternate scenario (which assumes extension of the Trump tax cuts, among other current policy extensions). [ 10 ]
Discretionary spending, mandatory spending, and revenue increases over nine-year intervals
Breakdown of revenues for US Federal Government in 2023
Waterfall chart shows cause of change from deficit in 1994 to surplus in 2001, measured as a % GDP. Income tax revenues rose as a % GDP, while defense spending and interest fell relative to GDP.
Corporate federal income tax revenues have declined relative to corporate profits.
CBO charts describing amount and distribution of top 10 tax expenditures (i.e., exemptions, deductions, and preferential rates)
Mandatory spending of the US Federal Government in 2023.
Breakdown of discretionary outlays of US Federal Government for 2023.
US federal spending for Fiscal Year 2021.
U.S. spending per person from 1989 to 2013. The "Nominal" line indicates the actual amount spent per person during that year, while the "Real" (inflation adjusted) line represents 2013 dollars.
Historical and projected US Federal Government revenues and spending from 2018 GAO financial report
The Medicare Trustees reduced their 2015 long-term forecast for Medicare costs as % GDP, mainly due to a lower rate of healthcare cost increases.
CBO forecast of Social Security tax revenues and outlays from 2015–2085. Under current law, the outlays are projected to exceed revenues, requiring a 29% reduction in program payments starting around 2030 once the Social Security Trust Fund is exhausted. [ 44 ]
Note: CBO estimates that policy changes with a 0.6% of GDP annual impact are sufficient to address the 75-year program shortfall. Abbreviations are explained in the chart page. Source: CBO Report-July 2010.
2023 Interest on federal debt
Comparison of actual U.S. Federal Spending 2008–2015 versus a trend line based on the 5% average annual increase from 1990–2008.
Three CBO deficit scenarios related to the American Taxpayer Relief Act of 2012 (ATRA) and the Fiscal Cliff. The blue line (August 2012 baseline) was the "current law" baseline, with tax increases and spending cuts that would take effect if laws were not changed. The grey line (March 2012 alternative baseline) was the "current policy" baseline, which represented the avoidance of the tax increases and spending cuts. The orange line (February 2013 baseline) was the post-ATRA result. [ 98 ]
Discretionary spending for the 2012–2020 periods, as projected in the CBO's Budget and Economic Outlook publications from January 2010 and February 2013. The Budget Control Act of 2011 (which includes the sequester) is the primary difference.
CBO – Federal Spending as %GDP Under Alternative Scenarios and Ryan's Path
Report of the National Commission on Fiscal Responsibility and Reform – Public Debt as % GDP Under Various Scenarios
2010 Budget: Projected Deficits and Debt Increases