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The Deterioration in the US Fiscal Outlook, 2001-2010

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  • Jeffrey B. Liebman

Abstract

From 1999 to 2001, US budget surpluses averaged 2% of GDP. By 2011, the Congressional Budget Office was projecting persistent "current policy" budget deficits exceeding 6% of GDP, even after the economy recovered from the recession. This paper reviews the remarkable deterioration in the US fiscal outlook. It shows that more than half of the deterioration occurred before the 2007-9 recession, as a combination of tax cuts, increased spending, and worse than expected economic performance shifted the budget from surplus to deficit. The further deterioration since 2007 has two main components. Spending on Medicare, Medicaid, and Social Security is projected to increase by almost 3% of GDP over the first 10 years of baby boomer retirements, and interest costs are rising both because of the underlying fiscal imbalance and also as a result of the recession. The paper also discusses proposals for reducing the deficit, longer-term fiscal challenges, and the political economy of fiscal reform.

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  • Jeffrey B. Liebman, 2013. "The Deterioration in the US Fiscal Outlook, 2001-2010," Tax Policy and the Economy, University of Chicago Press, vol. 27(1), pages 1-18.
    • Handle: RePEc:ucp:tpolec:doi:10.1086/671242
    DOI: 10.1086/671242
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    1. Congressional Budget Office, 2012. "The Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 42905, Congressional Budget Office.
    2. Congressional Budget Office, 2012. "An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 43539, Congressional Budget Office.
    3. Congressional Budget Office, 2012. "The Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 42905, Congressional Budget Office.
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    9. Congressional Budget Office, 2012. "The Budget and Economic Outlook: Fiscal Years 2012 to 2022," Reports 42905, Congressional Budget Office.
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    12. Congressional Budget Office, 2012. "The 2012 Long-Term Budget Outlook," Reports 43288, Congressional Budget Office.
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