A Straightforward Analysis of the Federal Budget Deficit

1
A Straightforward Analysis of the Federal Budget
Deficit

• By
• TinTin Snowy

2
CBO Projections 2007-2017

• Tax Revenues as GDP
• Outlays as GDP
• Budget Deficit as GDP

3
Problems with CBO Projections

• Assume early 2000s tax cuts will expire in 10
  years
• Assume no fix for the Alternative Minimum Tax
  Problem
• Assume no additional spending for war in
  Iraq/Afghanistan

4
Problems with CBO Projections

• Therefore, expect higher Deficit as of GDP

5
CBO Projections 2007-2050

• Our Group Estimates For Deficit
• 2006 2.3 of GDP
• 2050 8.9 of GDP
• Probably Underestimates Because with more
  future debt, Net Interest on the debt grows as
  portion of budget.

6
What it Would Take to Keep Budget Deficit Around
3 of GDP

• Our Group Advocates a Balanced Approach with
  both
• Tax revenue increases
• Spending growth reduction

7
Revenues

• We would raise Income Tax Rates on the Wealthy
  and Adjust theUpper Cap on Social Insurance Taxes
• We assume these changes would increase Tax
  Revenues from 18.2 to 19.5 of GDP

8
Outlays

• Health Care Reform We assume reform could reduce
  the Growth Rate in Medicare and Medicaid from
  5.35 to 4.75 annually
• Social Security Reform By raising retirement
  Age and means-testing benefits we could reduce
  the Growth Rate in Social Security from 3.5 to
  3.0

9
Bottom Line

• Our Group Estimates that the Deficit would only
  increase slightly
• 2006 2.3 of GDP
• 2050 3.2 of GDP