Fiscal Illusion and Deficit Spending

Romina BocciaAmericans are under a  fiscal illusion. High and persistent deficits and debt pass a  large share of the cost of government spending to future generations. This leads to greater demand for government than if taxpayers were internalizing the full cost today.According to theCongressional Budget Office (CBO), the annual federal deficit is projected to total roughly $1.6 trillion over the next 10  years. That’s the amount by which federal spending will exceed tax revenue, on average, each year. These deficits will grow the federal debt held by the public to 110 percent of gross domestic product (GDP) by 2032, bringing publicly held debt to its highest level ever by the end of this decade. And this assumes no major unexpected crises or large new spending programs will drive debt to such elevated levels even sooner.By comparison,annual deficits over the preceding two decades averaged $875 billion from 2003 to 2012 and $1.25 trillion a  year from 2013 to 2022 (adjusted for inflation). These periods were also characterized by major crises. During the decade from 2002 to 2011, the U.S. experienced the Great Recession—the most severe economic crisis in the U.S. since the 1930s. The last decade will be remembered for a 100‐​ye ar pandemic, during which entire economies mostly shut down to reduce the spread of COVID.This raises the question:why are deficits projected to be so high and persistent into the next decade,even after the pandemic emergency has ended an...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs