Addressing the Long-Run Budget Deficit: A Comparison of Approaches [August 25, 2011]   [open pdf - 422KB]

"Addressing a federal budget deficit that is unsustainable over the long run involves choices about providing public goods, making transfers, supporting state and local governments, and raising taxes. A start on addressing the federal budget deficit has been adopted in the Budget Control Act (P.L. 112-25) and the future growth in debt is also relevant to considering expiring tax cuts. A small share of federal spending is for direct provision of domestic government services, which many people may think of when considering federal spending. Since this spending is normally about 10% of total federal spending and about 2% of GDP [Gross Domestic Product] and deficits excluding interest are projected to be as much as 6.6% of GDP by 2035, cutting this type of spending can make only a limited contribution. Transfers and payments to persons and state and local governments constitute most of federal spending, about 70%. Defense spending, currently accounting for about 20% of spending, has declined over the past 35 years, but also tends to vary depending, in part, on the presence and magnitude of international conflicts. Until the recent recession, most types of nondefense spending have been constant or declining as a percentage of output, but spending for the elderly and health care has been rising. Although some increase in the debt can be attributed to the Bush tax cuts and the conflicts in Iraq and Afghanistan, along with growth in spending on the elderly and health care, the current debt level is not the result of prolonged and significant past deficits. Debt grew during the recession and its aftermath. Federal debt held by the public had actually declined from almost 50% of GDP in 1993 to 33% in 2001; it rose slightly to 36% by 2007. During the three recession/recovery years (2008 through 2010), it rose to 62%, and is projected to continue to grow somewhat, before stabilizing for a while. The problem with the debt lies less in the past than in the future, as growth in spending for health care and Social Security is projected to continue."

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CRS Report for Congress, R41970
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