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The Federal Budget Outlook, Chapter 11
We present new estimates of the budget outlook, based on the latest projections from the Congressional Budget Office and the Medicare and Social Security Trustee reports. The medium-term budget outlook has not changed appreciably since earlier this year. Under reasonable assumptions, the federal government is likely to face deficits in excess of 6 percent of GDP by late in the decade, with the debt-GDP ratio reaching 90 percent by or before 2020 and passing its previous all-time high of 109 percent by around 2022.
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The United States faces the prospect of large federal fiscal deficits in the immediate future, the next 10 years, and the longer term. The short-term deficits - the result of the tax cuts and spending increases of the last decade, the "Great Recession," and economic policy adjustments in the past year - are generally thought to be helping the economic recovery. In contrast, the medium-term deficits projected for the next 10 years and the long-term deficits projected beyond 2020 are a source of concern. Even if they do not lead immediately to a crisis, they will nevertheless create growing and serious burdens on the economy.
The unsustainability of federal fiscal policy has been discussed at least since the 1980s. But the problem has increased in importance and urgency in recent years, for several reasons. First, the medium-term projections have deteriorated significantly. Second, the issues driving the long-term projections - in particular, the retirement of the baby boomers and the aging of the population and the resulting pressure on Medicare and to some extent Social Security - which were several decades away in the 1980s - are now imminent. Third, there are increasing questions about the rest of the world's appetite for U.S. debt, as the United States has changed from a net creditor country in 1980 to a vast net borrower currently. Fourth, many countries around the world and many of the 50 states also face daunting fiscal prospects currently.
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