|
Advanced Search
|
Are Current Budget Deficits More Worrisome Than Those of the 1980s?Published: November 21, 2003 || Availability: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Note: This report is available in its entirety in the Portable Document Format (PDF). The budget deficit quickly soared from 1.6 percent of GDP in 1979 to 6.0 percent in 1983. However, as early as 1982 the deterioration of the budget balance became evident and a political reaction set in. Over the period 1982-84, the Congress passed a series of significant tax increases and became cautious regarding spending growth. Their politically courageous efforts bore little fruit at first and were set back severely by the recession of the early 1990s. But a surplus in 1998 was finally produced following deficit reduction packages in 1990, 1993 and 1997, combined with the positive legislative actions of the 1980s and an economic boom. In the current episode, the budget deficit is not likely to exceed the 6.0 percent of GDP reached in 1983 — if we are lucky — but the deterioration of the budget balance will be larger — from a surplus of 2.4 percent of the GDP in 2000 to a deficit of about 4 percent of GDP in 2004 (Chart III-1). The difference from the early 1980s would be even greater if it were adjusted for the effects of inflation on the real value of the public debt. Yet, the political reaction is still muted. The Administration at first argued that deficits were unimportant and had few bad effects; or, even if they had bad effects, there were higher priorities than deficit reduction. Their rhetoric has evolved a bit and Vice President Cheney recently referred to himself as a "deficit hawk," but no significant deficit reducing actions have been proposed. A few Democrats would rescind Bush.s tax cuts entirely and a few more would rescind them only for the "rich," but many of these would spend the money on expanding health insurance coverage and not on reducing the deficit. Discretionary domestic spending is likely to be more restrained than if there were no deficit — starving the beast works to some extent — but the main spending issues being debated involve adding an expensive prescription drug benefit to Medicare and spending an additional $87 billion on Iraq and Afghanistan. There is no intent to finance the latter by anything other than borrowing, and any cost saving reforms in Medicare will simply be used to increase the generosity of benefits, given that an allowance of $400 billion over 10 years for the net cost of the Medicare prescription drug program has already been put into the budget (Chart III-2). Note: This report is available in its entirety in the Portable Document Format (PDF). |
 |
HOME
|
TAX TOPICS
|
NUMBERS
|
TAX FACTS
|
LIBRARY
|
EVENTS
|
LEGISLATION
|
PRESS
|
TAXVOX Blog
|
About Us
 |
 |
by topic
