Reducing the Budget Deficit: Policy Issues
Marc Labonte
Specialist in Macroeconomic Policy
February 15, 2012
Congressional Research Service
7-5700
www.crs.gov
R41778
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Reducing the Budget Deficit: Policy Issues
Summary
In 2009, the federal budget deficit (the difference between outlays and revenues) exceeded $1
trillion for the first time, and it has remained above $1 trillion since. Those years also marked the
largest the deficit has been as a share of gross domestic product (GDP) in the period since World
War II. The budget is not projected to be on a sustainable path under current policy, in the sense
that it leads the publicly held debt to continuously grow more quickly than GDP. The timing of
deficit reduction remains a difficult issue because of continued weakness in the economy. If
deficits are reduced too quickly, the economy might tip back into recession. If unsustainable
deficits persist for too long in the economic recovery, it could crowd out private investment and,
in the worst case scenario, investors could refuse to continue to finance deficits that they believed
were unsustainable.
As one example of the policy changes that would return the budget to a sustainable path, the
Congressional Research Service (CRS) estimates that stabilizing debt as a share of GDP at its
2011 level would require budget deficits averaging 2.8% of GDP over the next 10 years. In dollar
terms, the deficit could equal $200 billion in 2013, rising to more than $600 billion from 2015 on.
Under the Congressional Budget Office’s (CBO’s) current law baseline, the deficit is already on a
sustainable path. Under CBO’s Alternative Fiscal Scenario, which modifies the current law
baseline by assuming that expiring tax provisions and the “doc fix” to Medicare are extended and
that the future automatic spending cuts under the Budget Control Act (BCA) do not come into
effect, the deficit would decline from more than 9% of GDP in 2011 to 5% of GDP in 2015, then
rise to 6% of GDP by 2022. To reduce the deficit to sustainable levels under this scenario would
require some combination of spending cuts and tax increases equivalent to roughly $800 billion in
2013, falling to $275 billion in 2015, then rising to $900 billion by 2022.
The recent growth in deficits is the result of spending reaching its highest level as a share of GDP
since 1945 and revenues reaching their lowest level as a share of GDP since 1950. Revenues were
low because of the recession and because of the temporary extension of expiring tax provisions,
such as the “alternative minimum tax (AMT) patch” and “Bush tax cuts.” If these tax cuts are
extended again, revenues are estimated to be reduced by about 2.5% of GDP from 2014 on and
will remain around their historical average from 2015 on.
Thus far, policy changes to reduce the deficit have targeted mainly discretionary spending. The
BCA would reduce discretionary spending by $1.5 trillion and mandatory spending by less than
$0.2 trillion over 10 years if automatic cuts are allowed to begin in 2013. Including interest
savings, the BCA would reduce the deficit by about 1% of GDP from 2014 on. Even if these cuts
proceed as scheduled, overall spending is projected to rise and remain above its historical average
over the next 10 years because of the growth in mandatory spending. Defense, Social Security,
and Medicare account for more than half of total spending. Outside of those three programs and
net interest, all other spending is about three-quarters the size of the budget deficit in 2012.
Growth in entitlement spending on the elderly drives long-term projections of large budget
deficits—by mid-century, outlays on Social Security and health programs would exceed total
revenues. Most proposals to reform entitlement programs for the elderly would generate
significant budgetary savings in the long run, but little budgetary savings in the short run, partly
because most proposals exempt current retirees from reform and partly because the savings from
these changes would compound over time. The U.S. fiscal outlook is not a purely long-term issue,
however—deficits are already at unsustainably high levels today.
Congressional Research Service
Reducing the Budget Deficit: Policy Issues
Contents
What Policy Changes Have Been Taken to Reduce the Deficit so Far?.......................................... 1
How Large Are Projected Deficits Under Current Policy?.............................................................. 3
Why Are Deficits Projected to Decline?.......................................................................................... 6
How Much Deficit Reduction Is Necessary?................................................................................... 7
How Quickly Should the Deficit Be Reduced? ............................................................................... 9
Policy Options for Deficit Reduction .............................................................................................. 9
Federal Spending..................................................................................................................... 11
Discretionary Spending..................................................................................................... 11
Mandatory Spending ......................................................................................................... 13
Revenues.................................................................................................................................. 15
Conclusion ..................................................................................................................................... 16
Figures
Figure 1. Selected Data from FY2012 Federal Budget.................................................................. 10
Figure 2. Federal Revenues and Outlays, Historical and Projected Under the Alternative
Fiscal Scenario............................................................................................................................ 11
Figure 3. Discretionary Spending, Historical and Projected in the Baseline................................. 12
Figure 4. Mandatory Spending in Selected Years .......................................................................... 14
Tables
Table 1. Deficit Projections Under Alternative Assumptions .......................................................... 5
Table 2. Average Annual Real Growth Rates of Discretionary Spending Outlays ........................ 12
Contacts
Author Contact Information........................................................................................................... 17
Congressional Research Service
Reducing the Budget Deficit: Policy Issues
he federal budget has been in deficit (i.e., spending has exceeded revenues) since 2002,
and deficits became significantly larger in 2009. That year, the deficit topped $1 trillion for
T the first time ever, and it is projected to remain above $1 trillion in 2012 for the fourth year
in a row.1 Relative to the overall size of the economy, budget deficits from 2009 to 2011 have
been significantly larger than in any other year since World War II.
From 1946 to 2008, budget deficits averaged 1.7% of gross domestic product (GDP) and
exceeded 5% of GDP only three times (equaling 7.2% in 1946, 6.0% in 1983, and 5.1% of GDP
in 1985). From 2009 to 2011, the budget deficit averaged 9.3% of GDP, and it is projected to
equal 7% of GDP in 2012.2 Current deficits are larger as a share of GDP than any recorded
historically except for those recorded during the Civil War, World War I, and World War II. In the
past, deficits have proven sustainable because periods of moderate growth in the debt relative to
GDP have been followed by periods when debt fell relative to GDP. Under current policy, deficits
are projected to cause the federal debt to continuously grow faster than national income, which is
unsustainable. The federal debt held by the public has grown from 40% of GDP in 2008 to a
projected 73% of GDP in 2012.
Congress has expressed interest in examining policy options to reduce the deficit. The
Congressional Research Service (CRS) does not take a position on the best way to reduce the
deficit. This report organizes and presents information to help policymakers frame the debate.
This report first discusses the size of projected budget deficits, then discusses how much the
deficit would need to be reduced to return to long-term sustainability, then analyzes alternative
time frames for reducing the deficit, and finally discusses broad policy choices for reducing the
deficit. For an overview of the causes and consequences of the long-term fiscal outlook, see CRS
Report RL32747,
The Economic Implications of the Long-Term Federal Budget Outlook, by Marc
Labonte.
What Policy Changes Have Been Taken to Reduce
the Deficit so Far?
From FY2001 to FY2010, policy changes added to budget deficits each year.3 In FY2011, policy
changes were a mix of deficit-reducing legislation and deficit-increasing legislation. To date,
1 All budget data presented in this report are from Congressional Budget Office,
Preliminary Analysis of the
President’s Budget for FY2012, March 2011 and Congressional Budget Office, Budget and Economic Outlook, January
2012 (hereafter referred to as “CBO baseline”), or Office of Management and Budget,
FY2013 Budget of the U.S.
Government, February 2012 (hereafter referred to as “President’s Budget”). The budget deficit is the excess of outlays
over revenues in a given year, broadly similar to the amount borrowed from the public that year. The publicly held debt
is the accumulation of all past borrowing from the public. The gross debt is the publicly held debt and the
intragovernmental debt (the debt that one part of the federal government borrows from another part, mainly
government trust funds). All references to years are to fiscal years, unless otherwise noted. For background information
on the debt and deficit, see CRS Report WKS0001_Overview,
Federal Debt and Deficit: Key Sources, by Justin
Murray.
2 Expressing budget data as a percentage of GDP is most appropriate for making comparisons over extended periods of
time because it allows the relative size of those amounts to be consistently compared. Dollar figures are not appropriate
because of inflation, which means that a dollar has a smaller amount of purchasing power over time, and because as the
economy has become larger, there are more resources available to finance spending through borrowing or taxes.
3 For information on causes of the budget deficit, see CRS Report R41134,
The Impact of Major Legislation on Budget
Deficits: 2001 to 2010, by Marc Labonte and Margot L. Crandall-Hollick.
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recent policy steps to reduce the deficit have primarily focused on reducing discretionary
spending (i.e., spending that is provided and controlled through the appropriations process).
Discretionary outlays declined from $1.347 trillion in 2010 and $1.346 trillion in 2011 to a
projected $1.308 trillion in 2012. Part of that decline is caused by a decline in spending on
overseas contingency operations (OCO), but most is the result of a decline in non-defense
discretionary spending. Because inflation reduces the purchasing power of $1 over time, the
decline is larger in real terms. Relative to the January 2011 baseline level, which adjusts for
inflation, discretionary spending was reduced by $29 billion in 2011.4
The reduction in 2011 discretionary spending occurred through the 2011 appropriations process.
For 2012 to 2021, the Budget Control Act (P.L. 112-25) reduced discretionary spending and
mandatory spending were reduced relative to the baseline.5 The Budget Control Act cut spending
through a two-step process.6 In the first step, student loan programs were cut and statutory caps
were set for discretionary spending for 2012 to 2021, with OCO, disaster spending, and
emergency spending exempt from the caps. In the second round (often referred to as the
“trigger”), additional spending cuts will be implemented beginning in January 2013. Most of
these round two spending cuts will fall on discretionary spending, through sequestration (the
across-the-board cancellation of budgetary resources) in 2013 and a reduction to the statutory
discretionary caps for 2014 to 2021. Most mandatory programs are exempted from the act’s cuts,
but a few smaller programs and parts of Medicare that are not will be cut through a sequestration
from 2013 to 2021. The cut to Medicare is capped at 2%.
Relative to 2011 levels adjusted for inflation, CBO projects that the Budget Control Act reduces
defense discretionary spending by $15 billion in 2012 and $812 billion over 10 years and non-
defense discretionary spending by $12 billion in 2012 and $714 billion over 10 years.7 These
estimates require some assumption to be made about the levels of discretionary spending that will
occur in categories that are exempt from the caps. For example, CBO assumes that emergency
spending, which is exempted from the caps and designated by Congress and the President, will be
zero in the next 10 years; if emergency spending does take place, discretionary savings from the
Budget Control Act would be reduced dollar for dollar. In addition, the Budget Control Act cuts
mandatory spending on student loan programs by $5 billion over 10 years and cuts other
mandatory spending (mostly Medicare) through the second-round sequester by $165 billion over
9 years.8 Since lower outlays would result in a lower debt relative to the baseline, debt service
savings from these spending cuts would reduce the deficit by roughly another $300 billion over
10 years. Including these interest savings, the Budget Control Act reduces the annual deficit by
about 1% of GDP from 2014 on.
4 Although the FY2011 had already begun, appropriations had not been completed when the January baseline was
released.
5 For more information, see CRS Report R42013,
The Budget Control Act of 2011: Effects on Spending Levels and the
Budget Deficit, by Marc Labonte and Mindy R. Levit. All of the reductions in spending discussed here would lead to
additional declines in spending on net interest because the federal debt would be lower than in the baseline.
6 For more information, see CRS Report R41965,
The Budget Control Act of 2011, by Bill Heniff Jr., Elizabeth
Rybicki, and Shannon M. Mahan.
7 Congressional Budget Office,
Testimony Before the Joint Select Committee on Deficit Reduction, U.S. Congress,
October 26, 2011. The amount of savings garnered by the Budget Control Act depends on what baseline it is being
compared with. For example, if it were being compared with a baseline based on 2010 levels of discretionary spending,
the savings would be higher than if it were compared with 2010 levels.
8 Congressional Budget Office,
Budget and Economic Outlook, January 2012, p. 13.
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If Congress acts to prevent the second round of spending cuts from taking place beginning in
January 2013, but leaves the first round discretionary caps in place, total discretionary spending
would be reduced by $778 billion over 10 years. In this scenario, mandatory spending would be
cut by only $5 billion, with the cuts falling on student loan programs.
Although spending has been cut, other policy goals, such as stimulating the economy, have also
led to recent policy changes that have increased the deficit relative to the baseline. For example,
CBO estimates that the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation
Act of 2010 (P.L. 111-312) increased the deficit by $374 billion in 2011, of which $204 billion is
attributable to the extension of expiring tax provisions. This act extended the “Bush tax cuts” 9 for
two years, extended the alternative minimum tax (AMT) “patch” for one year,10 extended and
expanded unemployment benefits for one year, and implemented a one year payroll tax cut. The
112th Congress has debated whether each of these provisions should be allowed to expire as
scheduled or extended further and whether further extensions should be deficit-financed or offset
by spending cuts or other tax increases.
How Large Are Projected Deficits Under Current
Policy?
Absent policy changes, budget deficits would change over time because spending and revenue
levels automatically change over time. Baseline budget projections are used to provide a
benchmark against which budgetary decisions can be made and policy proposals can be compared
over the budget window. A baseline is not meant to be the best guess of future outcomes or the
most desirable outcome, but a reasonable starting point for comparing policy options. The
projected magnitude and path of budget deficits depends greatly on what baseline assumptions
are made.
CBO estimates an official 10-year
current law baseline, which assumes that certain provisions of
law will expire as scheduled, even though many of these provisions have routinely been extended
in the past.11 Examples of such provisions include the 2001 and 2003 tax cuts (popularly known
as the “Bush tax cuts”), which were extended until the end of 2012 to avoid their expiration at the
end of 2010, and the “alternative minimum tax (AMT) patch,” which has been repeatedly
extended, most recently until the end of 2011. Another example is the Medicare cuts required in
law by the sustainable growth physician payment formula; Congress has enacted legislative
9 The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) and the Jobs and Growth
Tax Relief Reconciliation Act of 2003 (JGTRRA; P.L. 108-27) are popularly referred to as the “Bush tax cuts.”
Various acts since then have sped up the implementation or prevented the expiration of certain provisions of those acts.
10 The alternative minimum tax is not adjusted for inflation. As a result, Congress has enacted a series of temporary
“patches” to prevent a spike in taxpayers subject to the AMT. See CRS Report RL30149,
The Alternative Minimum Tax
for Individuals, by Steven Maguire.
11 Some expiring mandatory spending programs are assumed to continue under the baseline. According to CBO, “The
Deficit Control Act specifies some exceptions. For example, spending programs whose authorizations are set to expire
are assumed to continue if they have outlays of more than $50 million in the current year and were established at the
time of or before the enactment of the Balanced Budget Act of 1997. Programs established after that law was enacted
are not automatically assumed to continue but are considered individually in consultation with the budget committees.”
Congressional Budget Office,
Budget and Economic Outlook, January 2012, p. 11. For a list of programs that CBO
assumes will expire in its baseline, see Congressional Budget Office,
Budget and Economic Outlook, January 2012,
Table 3.3.
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overrides to prevent those cuts (popularly known as the “doc fix”) each year since 2003.12 CBO’s
current law baseline also assumes that the second round of spending cuts under the Budget
Control Act will occur in 2013 as scheduled. Under the current law baseline, the deficit would
decline to about 1% of GDP by 2017, mostly due to the baseline assumptions that the Bush tax
cuts and AMT patch will be allowed to expire as scheduled.
CBO also presents an unofficial Alternative Fiscal Scenario, which is a
current policy baseline
that assumes that spending and revenue policies in place now would remain in place. The
Alternative Fiscal Scenario modifies the current law baseline by assuming that the doc fix13 and
all expiring tax provisions are extended (including the Bush tax cuts and the AMT patch, as well
as dozens of smaller “extenders,” with the exception of the payroll tax cut). It also assumes that
the second round spending cuts in the Budget Control Act “trigger” will not come into effect in
2013 as scheduled, although it assumes that the first round discretionary caps will remain in
place. It yields much larger budget deficits, because the policy changes raise outlays or lower
revenues and because the larger budget deficits increase the interest that must be paid on the
national debt.
Table 1 illustrates deficit projections under various scenarios, starting with the current law
baseline and ending with the Alternative Fiscal Scenario. Under the Alternative Fiscal Scenario,
the deficit would bottom out at 5.1% of GDP in 2015. It would then begin to rise again, and reach
6.1% of GDP by the end of the projection window. From 2017 on, the deficit under the
Alternative Fiscal Scenario is more than four times larger than the current law baseline relative to
GDP. The extension of the Bush tax cuts and AMT patch adds $5.4 trillion to the deficit over 10
years, more than the effects of all of the other assumptions made in the Alternative Fiscal
Scenario combined.14
12 For more information, see CRS Report R40907,
Medicare Physician Payment Updates and the Sustainable Growth
Rate (SGR) System, by Jim Hahn and Janemarie Mulvey.
13 The doc fix is the only expiring mandatory provision that CBO assumes will be continued in its Alternative Fiscal
Scenario that is not also included in the current law baseline.
14 The budgetary effects of extending the AMT patch and Bush tax cuts cannot be separated because of an interactive
effect that makes the cost of jointly extending them greater than the cost of extending them separately.
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Table 1. Deficit Projections Under Alternative Assumptions
Fiscal Year
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
billions of dollars
CBO Current Law
$1,079 $585
$345
$269 $302 $220 $196 $258 $280 $279 $339
Baseline
Baseline
+
“Doc
Fix”
$1,088
$604 $366 $293 $330 $252 $233 $301 $330 $334 $401
Baseline + “Doc Fix” +
$1,100
$683 $483 $399 $427 $346 $328 $398 $432 $443 $518
Extenders
Baseline + “Doc Fix” +
$1,111
$916 $822 $794 $869 $841 $880 $1,014
$1,117
$1,201
$1,357
Extenders + Extend
“Bush Tax Cuts” and
“AMT Patch”
CBO Alternative Fiscal
$1,111 $981 $917 $899 $981 $960 $1,005 $1,144 $1,253 $1,344 $1,495
Scenario
% of GDP
CBO Current Law
7.0% 3.7% 2.1% 1.5% 1.6% 1.1% 0.9% 1.2% 1.2% 1.2% 1.4%
Baseline
Baseline
+
“Doc
Fix”
7.0% 3.8% 2.2% 1.7% 1.8% 1.3% 1.1% 1.4% 1.5% 1.4% 1.6%
Baseline + “Doc Fix” +
7.1% 4.3% 2.9% 2.3% 2.3% 1.8% 1.6% 1.8% 1.9% 1.9% 2.1%
Extenders
Baseline + “Doc Fix” +
7.2% 5.8% 5.0% 4.5% 4.6% 4.3% 4.3% 4.7% 4.9% 5.1% 5.5%
Extenders + Extend
“Bush Tax Cuts” and
“AMT Patch”
CBO Alternative Fiscal
7.2% 6.2% 5.5% 5.1% 5.2% 4.9% 4.9% 5.3% 5.5% 5.7% 6.1%
Scenario
Source: CRS calculations based on CBO data.
Notes: Cost of alternative policy assumptions includes additional debt service generated by those assumptions.
CBO Alternative Fiscal Scenario = Baseline + “Doc Fix” + Extenders + Extend “Bush Tax Cuts” and “AMT
Patch” + BCA Trigger. See text for details.
Discretionary spending poses conceptual problems for baseline projections. Baseline projections
are attempting to extrapolate current policy, not predict the most likely outcome. Because it is
determined on an annual basis, there is more than one reasonable assumption of what could be
considered an extension of “current policy” into the future. In its baseline projection, CBO
assumes that discretionary spending will match the levels set by the Budget Control Act. But the
Budget Control Act only sets certain types of discretionary spending in statute; it sets no limit on
overseas contingency operations (OCO) or any emergency spending, as designated by Congress
and the President. In the baseline, CBO assumes that OCO spending will increase at the rate of
inflation and emergency spending will be zero.15 Altering those assumptions would result in
15 Baseline spending levels for disasters and overseas military operations can be sensitive to the timing of
appropriations acts. From the perspective of crafting a deficit reduction proposal, if one believes that a policy included
in the baseline is unrealistic, such as a reduction in overseas contingency operations or the omission of future spending
in response to an unforeseen emergency in the next 10 years, it can be included in a budget proposal rather than altering
the baseline. The adjusted baseline in the President’s budget includes a placeholder for future disasters equal to $80
(continued...)
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higher or lower projections of baseline spending under current law. Prior to enactment of the
Budget Control Act, CBO assumed that discretionary spending would increase at the rate of
inflation (i.e., would stay constant in real terms)—an assumption that was lower than historical
growth rates. Under this assumption, deficits would be nearly one percentage point of GDP larger
by the end of the 10-year budget window.
Budget projections are subject to a high degree of uncertainty—based on history, actual outcomes
are likely to be much better or worse than projections. OMB estimates that the absolute average
errors for its budget deficit projections are 1.5% of GDP for the next budget year and 3.5% of
GDP for five years in the future.16 This implies that maintaining the status quo (under the “current
policy” baseline) could lead to a successful return to sustainability in five years, or to
sustainability problems that are more serious than current projections would suggest.
Why Are Deficits Projected to Decline?
As
Table 1 illustrates, much of the projected reduction in the deficit over the next 10 years is a
function of the assumptions made by the current law baseline. But even the Alternative Fiscal
Scenario projects that the deficit will fall from over 9% of GDP in 2009-2011 to 7% of GDP in
2012 to as low as 4.9% of GDP in 2017. The deficit declines under the Alternative Fiscal
Scenario for the following reasons:
• CBO projects that revenues automatically rise and certain mandatory spending
automatically falls as the economy eventually returns to full employment.
Economists refer to these changes as “automatic stabilizers.” Assuming all
expiring tax provisions are extended, revenues are projected to rise from about
15% of GDP in 2011 to 18% of GDP from 2017 on.17 By 2015, unemployment
compensation is projected to fall to less than half of its 2011 level in nominal
dollars, although this is partly due to the expected expiration of the temporary
extension of benefits.
• The temporary spike in budget authority caused by the American Reinvestment
and Recovery Act (ARRA, P.L. 111-5, popularly known as the 2009 “Economic
Stimulus Act”) has dissipated. ARRA was intended to be only a temporary boost
to spending to stimulate the economy, and Congress has allowed budget authority
to return to close to pre-ARRA levels to date.18
• Most financial stabilization outlays in the federal budget occurred within the
Troubled Asset Relief Program (TARP)19 or on transfers to the government
sponsored enterprises (GSEs). CBO projects that there will be only minimal
(...continued)
billion over 10 years.
16 Office of Management and Budget,
FY2012 Budget of the U.S. Government, Analytical Perspectives, February 2011,
p. 471.
17 Revenues also rise relative to GDP automatically over time because of “real bracket creep,” meaning that the same
tax system yields more revenue as national income rises.
18 In 2008, before ARRA was enacted, non-defense discretionary budget authority was $494 billion. In 2009, it was
$803 billion, but in 2011, it was $511 billion.
19 TARP was created by the Emergency Economic Stabilization Act (P.L. 110-343).
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outlays on financial stabilization programs going forward, due to improvements
in financial markets and the expiration in 2010 of Treasury authority to enter into
new contracts with regards to TARP and the GSEs. In 2009, outlays of $243
billion were recorded for TARP and the GSEs. In 2010 and 2011, transfers to the
GSEs declined and, due to budgetary conventions, TARP recorded negative
outlays that reduced the deficit.20
• CBO assumes in the Alternative Fiscal Scenario that discretionary spending will
adhere to the first round discretionary caps created by the Budget Control Act.
This would reduce discretionary spending from 9% of GDP in 2011 to 6% of
GDP in 2022, which would be its lowest level since data were first collected in
1962.
The projected decline in deficits is temporary, under any scenario in
Table 1, and is followed by a
gradual, long-term increase in the projected deficit. Long-term projections indicate that budget
deficits would eventually become very large relative to GDP outside the projection window under
current policy if revenues remain similar to their historical share of GDP. Under a long-term
projection of current policy, CBO projects deficits would exceed 10% of GDP by 2026 and 20%
of GDP by 2043.21
How Much Deficit Reduction Is Necessary?
The targeted amount of deficit reduction depends on the policy goal. A balanced budget could be
pursued so that the government would have a neutral effect on the national saving rate (by
accounting identity, budget deficits reduce the national saving rate).22 Since the United States has
a low national saving rate relative to other countries and relative to domestic investment needs, a
case could be made that the government should at least not continue to reduce the national saving
rate by running budget deficits in the future. If the policy goal were for the government to
increase the national saving rate or reduce the federal debt, then the government could target a
budget surplus. Some economists call for a balanced structural budget, which would allow for
modest deficits in downturns and budget surpluses in boom times. For 2009 to 2011, a
structurally balanced budget would have allowed for an actual deficit of about 2¼% of GDP.23
A less ambitious policy goal would be to return fiscal policy to a sustainable path. History
demonstrates that budget deficits can be sustained indefinitely as long as they are small enough
that government debt does not continuously grow more quickly than GDP. The budget is not
projected to be on a sustainable path under current policy (as defined by the Alternative Fiscal
Scenario) because the debt held by the public would continuously grow more quickly than GDP,
reaching 94% of GDP in 2022, thus implying that an ever-growing portion of national income
would be needed to meet interest payments. As long as investors remain willing to finance large
20 Reductions in TARP’s projected lifetime cost led to negative outlays in 2010 and 2011 to compensate for what
proved in hindsight to be too large an estimate of its cost in 2009.
21 Long-term budget data can be found in Congressional Budget Office,
The Long-Term Budget Outlook, June 2011.
The figures cited here are under CBO’s “alternative fiscal scenario.” For more information, see CRS Report RL32747,
The Economic Implications of the Long-Term Federal Budget Outlook, by Marc Labonte.
22 In simple terms, saving is measured by the excess of income over spending. When the government’s outlays exceed
its revenues, it must borrow from the public to finance the difference, and it has a negative saving rate.
23 Congressional Budget Office,
The Budget and Economic Outlook, January 2012, Table C-2.
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deficits, there is no barrier to the debt continuing to grow relative to GDP, and there has been no
difficulty in financing it to date. At some point, however, investors would refuse to continue to
finance such deficits, because the proportion of national income devoted to interest payments
cannot rise indefinitely.24
The size of the deficit compatible with sustainability depends on the size of the debt at the time it
is stabilized and projected GDP growth rates. Because it is unknown how much longer the debt
can be increased relative to GDP, for illustrative purposes, CRS estimates the budget deficits that
would be consistent with stabilizing debt as a share of GDP at its projected 2012 level (73% of
GDP) based on CBO’s projections of GDP growth. Stabilizing the debt at 2012 levels would
require annual budget deficits no larger than approximately 1% of GDP in 2013, rising to 3.5% of
GDP in 2015 and 2016, falling to 2.75% of GDP from 2019 on.25 In dollar terms, this would
amount to a deficit of about $175 billion in 2013, rising to the $600 billion range from 2015 on. If
actual policy followed the current law baseline, the budget deficit is already projected to be on a
sustainable path. Compared with the Alternative Fiscal Scenario in
Table 1, achieving
sustainability would require some combination of spending cuts and tax increases equivalent to
roughly $800 billion in 2013, falling to $275 billion in 2015, and rising each year thereafter until
it exceeds $900 billion by 2022. In other words, one possible path to fiscal sustainability is to
allow the policy changes already scheduled in law to occur. Another possible path is to prevent
those changes from occurring, and then make offsetting cuts in spending or increases in taxes of
$800 billion in 2013. CRS makes no recommendations on the best set of policies to achieve
sustainability.
Under CBO’s Alternative Fiscal Scenario and current interest rate projections, net interest on the
federal debt is larger than the sustainable budget deficit, meaning that revenues would need to
exceed non-interest spending (what economists call a “primary surplus”) to stabilize the debt
relative to GDP. Were GDP growth lower or interest rates higher than projected, the primary
surplus would have to be larger to be sustainable, and vice versa. By historical standards, CBO’s
projections of economic growth over the next 10 years are relatively modest, but this is mostly
because CBO projects that the labor supply will grow much more slowly than it has historically
due to the aging of the population. Projections assume that interest rates will remain at relatively
low levels by historical standards over the next 10 years. CBO estimates that if interest rates rose
to their average level from 1991 to 2000, the budget deficit would be an average of $100 billion
higher per year over the next 10 years. If interest rates rose to their average level from 1981 to
1990, the budget deficit would be an average of $500 billion higher per year over the next 10
years.26
Because deficits are projected to continue to grow in the long run, growing cuts in spending or
increases in taxes would be required over time to maintain sustainability. Larger cuts in spending
or increases in taxes would be required today to spread those changes evenly over time. For
example, CBO projects that spending would need to be cut or revenues increased by 8.3% of
24 Economic effects of an unsustainable budget deficit are discussed in CRS Report R40770,
The Sustainability of the
Federal Budget Deficit: Market Confidence and Economic Effects, by Marc Labonte.
25 The sustainable deficit is significantly smaller in 2013 than later years because CBO projects low nominal GDP
growth in 2013.
26 Congressional Budget Office,
Letter to the Honorable Paul Ryan, February 24, 2011, Table 2.
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GDP immediately to stabilize the debt-to-GDP ratio over the next 75 years, which would result in
a projected budget surplus in 2012.27
The U.S. fiscal outlook is not a purely long-term issue, however—deficits are already at
unsustainably high levels today, and while projected deficits are larger than today’s deficits
outside the 10-year budget window, they are also more uncertain. The deficit is a long-term issue
in that the economic consequences from running large deficits have been minor to date, but there
is the risk that that the deficit’s effect on the economy could become negative, possibly acutely
so, at any time. Deficits are also a long-term issue in the sense that most observers believe
fundamental reforms to outlays and revenues would be necessary to put the budget on a
sustainable path; however, any delay to implementing those changes increases the eventual
budgetary cost of returning to a sustainable fiscal path, all else equal.
How Quickly Should the Deficit Be Reduced?
The state of the economy is an important factor to consider in determining the desired timing of
deficit reduction. All else equal, mainstream economic theory predicts that reducing the deficit
would have a contractionary effect on the economy in the short run, whether it be through tax
increases or spending reductions. During a period of robust economic growth, that contractionary
effect would be more easily absorbed by other sectors of the economy, and the expansion would
likely be sustained. During a period of high unemployment, such as the present, reducing the
budget deficit would be expected to make unemployment higher (or fall more slowly) than would
otherwise be the case, all else equal. On these grounds, an argument could be made for
postponing deficit reduction until the economy improves. Given that the effect on the economy is
proportional to the size of the deficit reduction, avoiding unwanted contractionary effects also
argues for a gradual approach to deficit reduction.
On the other hand, the risk of a fiscal crisis as long as the deficit is at an unsustainable level
would argue for moving to sustainability as quickly as possible to eliminate that risk. Low interest
rates indicate that markets believe there is little risk of a crisis currently, but market sentiment can
change quickly, as has occurred in countries such as Greece and Ireland. In these countries, GDP
has contracted deeply and unemployment has risen sharply.
CBO projects that unemployment will rise to 9% in 2013 and 2014. These economic projections
are based on the CBO “current law” baseline deficit, which is reduced rapidly between 2012 and
2013. Under the Alternative Fiscal Scenario, which projects a more gradual reduction in the
deficit, CBO projects that unemployment would be between 7.4% and 8.9% in 2013.
Nevertheless, CBO projects that significant deficit reduction under the current law baseline would
not prevent the eventual return to full employment by 2017.
Policy Options for Deficit Reduction
Budget deficits can be reduced through cuts in spending, higher taxes, or a combination of both.
Plans to reduce the deficit are faced with the fact that Social Security, Medicare, and defense
27 Congressional Budget Office,
The Long-Term Budget Outlook, June 2011, p. 15. Economists call this concept the
“fiscal gap.”
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make up more than half of total spending.
Figure 1 compares the projected deficit to overall
spending and revenues in FY2012. It shows that the deficit is about three-quarters the size of all
non-interest spending outside of Social Security, Medicare, and defense discretionary. It is also
more than three-quarters of total discretionary spending (defense and non-defense combined). It
is about half the size of total revenues.
Figure 1. Selected Data from FY2012 Federal Budget
billions of dollars
$3,000
$2,500
$2,000
$
of $1,500
ns
llio
bi $1,000
$500
$0
Budget
Social
Medicare
Defense
Other Non-
Revenues
Deficit
Security
Interest
Spending
Source: CRS calculations based on CBO data.
Note: Budget deficit, spending, and revenues for 2012 are projected based on the January CBO baseline.
Budget deficits are the result of the shortfall between spending and revenue. As seen in
Figure 2,
spending in 2009 reached its highest level as a share of GDP since 1945 and revenues have
reached their lowest level as a share of GDP since 1950. From 1946 to 2008, outlays averaged
19.6% of GDP, and were generally below 20% of GDP until 1975, above 20% of GDP from 1975
to 1996, and below 20% of GDP from 1997 to 2005. From 2009 to 2011, outlays averaged 24.1%
of GDP. From 1946 to 2008, revenues averaged 17.8% of GDP, showing no long-term upward or
downward trend from 1952 to 2007. Revenues were at least 17% of GDP in each year during that
period except for 1955, 1959, 2003, and 2004, when they were between 16% and 17%. From
2009 to 2011, revenues were below 16%.
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Figure 2. Federal Revenues and Outlays, Historical and Projected Under the
Alternative Fiscal Scenario
1946-2022
26
24
Projected
22
P
20
D
G
18
16
% of
14
12
10
58
62
81
85
01
05
1946 1950 1954 19
19
1966 1970 1974 1977 19
19
1989 1993 1997 20
20
2009 2013 2017 2021
revenues
outlays
Source: OMB and CRS calculations based on CBO data.
Notes: See
Table 1 for details on the Alternative Fiscal Scenario.
Just as recent deficits are the combination of all past outlay and revenue decisions, returning the
budget to balance would be difficult without a combination of outlay and revenue changes. For
instance, to return the budget to balance while maintaining 2011 revenue levels would require that
outlays decline to a share of GDP last seen in the 1950s. Likewise, to balance the budget while
maintaining 2011 outlay levels would require revenues to rise to their highest share of GDP ever.
Federal Spending
Total spending under the Alternative Fiscal Scenario would fall by nearly one percentage point of
GDP from 2011 to 2012, and is projected to average 23.4% of GDP in the 10-year budget
window. (Total spending under the CBO current law baseline never falls below 21.5% of GDP.)
From 1946 to 2008, there were only three years when outlays were above 23% of GDP. By 2022,
total spending is projected to exceed its 2011 share of GDP under the Alternative Fiscal
Scenario—despite discretionary spending falling to its lowest share of GDP since data was first
collected—because mandatory spending and net interest on the federal debt grow relative to GDP.
The projected increase in net interest is due to the growth in the federal debt and the return to
more normal interest rates from the below-average rates currently prevailing.
Discretionary Spending
Large budget deficits relative to GDP since 2009 have corresponded with higher levels of
discretionary spending relative to GDP, but not historically high levels since data was first
available in 1962, as seen in
Figure 3. Defense discretionary spending was higher from 1962 to
1992 as a share of GDP than it was in 2010. From 1963 to 2001, defense discretionary spending
generally fell relative to GDP—but not in terms of nominal dollars. It then began to grow, when
overseas military operations expanded. It currently remains well below the share of GDP that
prevailed before the 1990s. Non-defense discretionary spending has shown no long-term upward
or downward trend relative to GDP—except for an elevated period from 1975 to 1981, it has
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always stayed within 3.5% to 4.0% of GDP. Over the late 1990s, it fell to its lowest level of GDP
since data has been collected, and then rose from that low base in the 2000s. It has been above its
long-term average since 2009, but below the levels prevalent from 1975 to 1981. Since 2009,
much of the growth in non-defense discretionary spending was a result of the 2009 Economic
Stimulus Act. Most discretionary spending under this act will be completed by 2011.
Figure 3. Discretionary Spending, Historical and Projected in the Baseline
1962-2022
16
14
Actual CBO Baseline
12
P
10
D
f G
8
6
% o
4
2
0
62
68
71
74
77
80
86
89
92
95
01
04
07
10
13
19
22
19
1965 19
19
19
19
19
1983 19
19
19
19
1998 20
20
20
20
20
2016 20
20
Defense
Non-Defense
Source: OMB and CBO.
Note: Figure assumes that spending cuts under the Budget Control Act wil occur as scheduled.
In the current law baseline, discretionary spending declines significantly relative to GDP over the
next 10 years to its lowest share of GDP since data were first collected in 1962, as shown in
Figure 3. The current law baseline assumes that discretionary spending will adhere to the levels
set in the Budget Control Act. Even if the Budget Control Act’s automatic “trigger” cuts are not
implemented in 2013, total discretionary spending under the discretionary caps would still fall to
its lowest share of GDP since 1962.
The CBO current law baseline assumes discretionary spending will fall in nominal terms (i.e., not
adjusted for inflation) each year from 2011 to 2015. From 1963 to 2010, discretionary spending
fell in nominal terms in only four years, most recently in 1996. Adjusted for inflation, the CBO
baseline assumes that both defense and non-defense spending would fall in real terms each year
from 2011 to 2022. If this occurred, it would mark a significant break from past policy, as shown
in
Table 2.
Table 2. Average Annual Real Growth Rates of Discretionary Spending Outlays
Actual and CBO Baseline, Adjusted for Inflation
Defense
Non-Defense
2000-2008
5.1% 3.0%
2009-2010
5.7%
11.4%
2011-2022
-2.4% -3.2%
Source: CRS calculations based on OMB and CBO data.
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Notes: Data for 2000 to 2011 are actual; data for
2012 to 2022 assume that spending cuts under the Budget
Control Act will occur as scheduled.
CBO includes the continuation of spending on overseas military operations at current levels
(about $146 billion a year in 2012 dollars) in its baseline projection of discretionary spending
throughout the 10-year budget window because it is exempt from the Budget Control Act caps.
For defense, the timing and magnitude of any potential drawdown in overseas military operations
could cause military spending to decline relative to the baseline, but traditionally such changes
have not been motivated by deficit reduction. Even if current operations are reduced, future
geopolitical events could require military personnel to be deployed elsewhere in the next 10
years, so the baseline does not necessarily overestimate future defense spending.
One macroeconomic implication of reducing discretionary spending is that most federal spending
on physical capital (e.g., infrastructure) and human capital (e.g., education) is located in the
discretionary portion of the budget. Economic theory predicts that a lower future capital stock
would reduce the long-term size of the economy from what it otherwise would be, all else equal.28
In long-term projections, CBO holds discretionary spending constant as a share of GDP because it
is determined annually. Because discretionary spending is held constant, it is not responsible for
the growth of the budget deficit in long-term projections.
Mandatory Spending
Unlike discretionary spending, mandatory spending grew rapidly from 5% of GDP in 1962 to a
range of 9% to 10.5% of GDP from 1975 to 2007, peaking in recession years because of
automatic stabilizers. It exceeded 13% of GDP from 2009 to 2011, marking its highest share of
GDP since data were first compiled in 1962. In contrast to discretionary spending, mandatory
spending is projected to continue to grow faster than inflation and exceed 13% of GDP over the
next ten years under current policy. Since 1962, mandatory spending fell in nominal terms in only
one year, 2010; if TARP and deposit insurance, which recorded negative outlays that year, are
removed, all other mandatory spending grew in 2010.
Over the long term, the upward trend in mandatory spending in the past and future is dominated
by Social Security, Medicare, and Medicaid, which accounted for about three-quarters of total
mandatory spending in 2010. Between 2007 and the 2009 to 2011 period, the growth in
mandatory spending was dominated by financial crisis programs, the 2009 Economic Stimulus
Act spending, and automatic stabilizers (primarily located in the Income Security category). From
2007 to 2009, mandatory health and retirement programs (including Social Security, Medicare,
and Medicaid) increased by $234 billion or 19%, as shown in
Figure 4. Over the same period,
income security outlays increased by $146 billion or 73%. In FY2009, TARP was created and the
GSEs began to receive financial assistance, adding $152 billion and $91 billion to mandatory
spending, respectively.
28 About half of federal spending on physical capital is for defense, and reduced defense capital spending may not have
the same economic effects as reduced non-defense capital spending.
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Figure 4. Mandatory Spending in Selected Years
billions of nominal dollars
$3,000
$2,500
$2,000
$
Other
$1,500
GSEs
TARP
$1,000
billions of
Income security
$500
Health/Retirement
$0
2007
2009
2010
2013-2022
-$500
(avg.)
Source: CRS calculations based on CBO data.
Notes: Health/Retirement = Social Security, Medicare, Medicaid, Civil Service and Military Retirement, Veterans,
and other health programs (net of offsetting receipts); GSEs = Government Sponsored Enterprises; TARP =
Troubled Asset Relief Program; Income Security = unemployment benefits, means-tested transfer programs to
households, refundable tax credits; Other = remaining programs net of offsetting receipts. Outlays can be
negative for a category because offsetting receipts exceed spending or because of subsidy reestimates for credit
programs. Totals for joint state-federal programs include only the federal share.
Outside of health and retirement programs, outlays on other mandatory programs are projected to
decline significantly in nominal terms over the next 10 years. TARP registered negative outlays of
$110 billion in 2010 and $37 billion in 2011, representing downward revisions of the previously
estimated cost of the program, and is projected to record outlays of less than $1 billion per year
over the next 10 years. Transfers to the GSEs declined to $5 billion in 2011, and are projected to
average $3 billion per year over the next 10 years. As the economy improves, “automatic
stabilizer” spending is also projected to decline: spending on income security programs more than
doubled in nominal terms between 2007 and 2010, but is projected to decline from $438 billion in
2010 to an annual average of $302 billion over the next 10 years.
In long-term budget projections, rising budget deficits are driven primarily by the growth in
entitlement programs for the elderly, particularly health spending. Social Security outlays are
projected to rise from 4.8% of GDP today to 6.1% of GDP in 2035, and federal health outlays
(mainly on Medicare and Medicaid) are projected to rise from 5.6% today to as much as 10.3% of
GDP in 2035. By 2050, outlays on Social Security and health programs would exceed total
revenues. In part, this growth is driven by the assumptions that go into these projections—
revenues and discretionary spending are assumed to stay constant relative to GDP in the long run,
whereas health spending per capita is projected to continue to grow faster than GDP per capita
because it has historically grown much more quickly. If health spending per capita grew at the
same rate as GDP per capita (technically, this is referred to as an excess cost growth rate of zero),
much of the increase in federal spending would be avoided, although spending would still grow
somewhat because of demographic changes—namely, the retirement of the baby boomers—that
increased the number of recipients.29
29 For more information, see CRS Report RL32747,
The Economic Implications of the Long-Term Federal Budget
(continued...)
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The growth in elderly entitlement spending keeps deficits unsustainably large in the long run.
Restraining the future growth rate of this spending would keep the deficit from growing, but it
alone would not reduce the budget deficit in the short run. In effect, since the debt is already
growing faster than GDP today, restraining elderly entitlement growth would keep the debt to
GDP ratio on its current upward—and therefore, unsustainable—trajectory.30 Most proposals to
reform elderly entitlement programs would generate significant budgetary savings in the long run,
but little budgetary savings in the short run, partly because most proposals exempt current retirees
from reform and partly because the savings from these changes would compound over time. For
example, immediately reducing excess cost growth for federal health spending to zero would
reduce federal spending by 2% of GDP after 14 years, but by 0.7% of GDP after 5 years.31
Revenues
In 2009 and 2010, revenues were at historically low shares of GDP across all major categories—
individual income taxes were at their lowest share of GDP since 1950, corporate income taxes
were at their lowest share of GDP since the 1930s, social insurance receipts were at their lowest
share of GDP since the 1970s, and excise taxes were at their lowest share of GDP since 1934, the
first year for which data are available. In recent years, most revenues have come from the
individual and social insurance categories. In 2011, income tax revenue rose as a share of GDP
because of the economic recovery, but social insurance receipts declined as a share of GDP
because of the payroll tax cut (P.L. 111-312), and total revenues remained below historical
averages as a share of GDP.
Revenues in the CBO “current law” baseline are projected to exceed 20% of GDP from 2015 on,
which is higher than the historical average. This increase occurs primarily because CBO assumes
that the “Bush tax cuts” and “AMT patch” expire as scheduled in current law. If the tax cuts and
AMT patch continue to be extended (as assumed in the Alternative Fiscal Scenario), revenues
would be about 2% of GDP lower in 2014, rising to 2.5% of GDP by 2021. In this scenario, total
revenues would gradually increase relative to GDP over the next 10 years due to the improvement
in the economy (initially) and “real bracket creep,” returning to their historical average around
2014. Real bracket creep refers to the fact that the same tax structure generates more revenue
relative to GDP when incomes rise. But revenues would not return to 18.5% of GDP, which is the
highest share of GDP that revenues have reached since the Bush tax cuts were fully implemented,
at any point in the next decade under the Alternative Fiscal Scenario because of the enactment of
additional tax cuts since then.
If policymakers decided to increase revenue to reduce the deficit, five broad choices are often
discussed32:
• redesigning the structure of the tax system;
(...continued)
Outlook, by Marc Labonte.
30 This would be the case under the assumptions that discretionary spending and revenues stay around the historical
average, as opposed to revenues being determined by current law.
31 Congressional Budget Office,
Long-Term Budget Outlook, June 2011, Figure 3-4.
32 For a further analysis, see CRS Report R41641,
Reducing the Budget Deficit: Tax Policy Options, by Molly F.
Sherlock.
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• adding new revenue sources, such as a carbon tax or a value added tax (VAT);
• increasing existing taxes;
• “broadening the tax base” by eliminating tax expenditures (deductions,
exemptions, and credits); or
• allowing tax cuts to expire as scheduled.
Redesigning the tax system or adding new revenue sources could theoretically improve economic
efficiency and might be more appealing to some than increasing existing taxes, but in practice,
pressure to compensate those made worse off from these changes may result in those policies
raising little additional revenue. Generally, economists favor eliminating tax expenditures over
raising marginal tax rates on efficiency grounds, although some specific expenditures may
promote economic efficiency. Tax expenditures have also been criticized on the grounds of equity
and complexity.33
For long-term projections, defining revenues under current policy is problematic. Under current
law, revenues are projected to gradually rise relative to GDP over the next 75 years because some
parts of the tax system, notably the AMT, are not indexed for inflation and other parts of the
system would experience “real bracket creep.”34 If current policy were instead considered to be
defined as setting revenues at current levels or returned to historical levels, revenues would be
insufficient to match the long-term growth in spending under current policy, and progressively
larger budget deficits would result.
Conclusion
Budget deficits have reached historically high and unsustainable levels since 2009 because
spending has been at its highest share of GDP since 1945 and revenues have reached their lowest
share of GDP since 1950. By 2017, deficits decline to about 1% of GDP—a sustainable level in
the sense that it would cause the federal debt to fall relative to GDP—under the official CBO
“current law” baseline. This baseline makes several assumptions that would mark a significant
change from current policy—that tax provisions such as the Bush tax cuts and AMT patch would
be allowed to expire as scheduled although they have already been extended at least once, that
cuts to Medicare physician payments would be allowed although Congress has routinely
prevented those cuts, and that discretionary spending will fall to historically low shares of GDP
under the Budget Control Act. Under CBO’s Alternative Fiscal Scenario, budget deficits under a
continuation of current policy (as opposed to current law) would remain between 5% and 6% of
GDP and would continually rise as a share of GDP after 2014 over the next 10 years.
One policy goal is to place the deficit on a sustainable path so that the publicly held debt
stabilizes as a share of GDP. For illustrative purposes, CRS estimates that to stabilize the debt as a
share of GDP at its projected 2012 level (73% of GDP) would require average annual budget
deficits of 2.8% of GDP over the next 10 years. In dollar terms, this would amount to a deficit of
about $400 billion in 2012, rising to about $550 billion in 2015. Compared with the “current
33 For more information, see CRS Report RL33641,
Tax Expenditures: Trends and Critiques, by Thomas L.
Hungerford.
34 The reason regular AMT “patches” have been enacted in recent years is to prevent an increase in taxpayers subject to
the AMT due to inflation.
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policy” baseline, this would require some combination of spending cuts and tax increases
equivalent to more than $700 billion in 2012 and $400 billion in 2015.
Balancing the budget through changes to one subsection of the budget is not mathematically
possible at 2012 levels. For example, total spending outside of Social Security, Medicare,
defense, and net interest is projected to be roughly three-quarters the size of the budget deficit in
2012. Total revenues are projected to be about half the size of the deficit in 2012. To date,
legislation to reduce the budget deficit has focused on reducing discretionary spending, but the
budget deficit in 2012 is projected to be more than three quarters the size of total discretionary
spending (defense and non-defense combined).
In long-term projections of current policy, unsustainable budget deficits are largely driven by the
growth in elderly entitlement spending. By 2050, outlays on Social Security and health programs
are projected to exceed total revenues. However, because deficits are already at unsustainable
levels today, restraining the future growth rate of elderly entitlement spending alone would still
leave an unsustainably large budget deficit—in effect, it would simply keep the deficit from
getting larger. Most proposals to curb the future growth of these programs call for gradual
changes that exempt those who are now elderly or near-elderly. These types of proposals typically
result in modest deficit reduction in the short term.
The Budget Control Act is projected to reduce the deficit by about 1% of GDP on average over
the next 10 years, mostly through discretionary spending cuts. If other current policies remain in
place, this act would not appear to reduce the deficit enough to restore fiscal sustainability. In this
scenario, revenues as a share of GDP will remain below their historical average and mandatory
spending will remain at historically high levels as a share of GDP. Revenue levels are currently
low because of the recession and tax cuts. The Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010 further increased the deficit by an estimated $374
billion in 2011, of which $204 billion is attributable to the extension of expiring tax provisions.
Author Contact Information
Marc Labonte
Specialist in Macroeconomic Policy
mlabonte@crs.loc.gov, 7-0640
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