Getting A Bad Feeling: CBO Review of Government Budget Options

September 17th, 2011
in econ_news

Econintersect: The Congressional Budget Office threw their two cents into the debate of options open to the USA Government to get its budget under control. Citing the aging boomers and the rising health care burdens, budget policy of the last 40 years must be abandoned - and at least one of the following options need to be implemented:

  • Raise federal revenues significantly above their average share of GDP;
  • Make major changes to the sorts of benefits provided for Americans when they become older; or
  • Substantially reduce the role of the rest of the federal government relative to the size of the economy.

Follow up:

The dilemma is obvious from the following graph.

Even under the baseline scenario (which means all laws expire without replacement), the budget deficit remains between 1% and 2% beginning in 2011. If existing laws are extended, the deficit on average will remain above 4% of GDP - and this is not considering another crisis (say another recession, disaster or war).

Further, most are missing that in 2011 the Federal Government is adding an 8.5% tailwind to the economy in 2011 which will be reduced to under 2% by 2014 under the CBO baseline. This likely equates to a 6% headwind to GDP.

Political rhetoric ignores economic realities - taxing removes money from the economy, cutting government spending removes money from the economy.

source: CBO

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  1. Raise federal revenues - Are they out of their minds? This is the most insane thing I've heard all year!

    A government operating a fiat currency regime HAS NO "REVENUE"!!!! Where have these bozo's been since 1933?

    The rest of their sentence hardly matters. Just adding nonsense to oxymorons.

    > significantly above their average share of GDP
    see Beardsley Ruml, NY Fed, 1946
    "Taxes for revenue are obsolete."

    Then read up on our Revolution's "Continentals," Abe Lincoln's "Greenbacks" and FDR's $US. They're all ours, right now.

    Lord have mercy! Has the banking lobby convinced American's that the earth is flat?
    This nonsense cannot stand.

  2. Joe Firestone says :

    The banking lobby convinced the America that the earth is flat and the US is just a big household long ago. WE are in the grip of austerity insanity and keep repeating the same mistakes.

    "Taxes for revenue are obsolete."

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