Critical Issues
Should the Bush Tax Cuts Be Extended or Allowed to Expire?
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Can the U.S. Administration Tackle the Fiscal Deficit Amid Political Gridlock?
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Will Surging U.S. Debt Weaken Future Economic Growth?
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Is the U.S. Fiscal Deficit Reaching Unsustainable Levels?
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Will U.S. Sovereign Ratings Come Under Pressure?
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Will the U.S. Administration's Tax Reform Proposals Ease or Exacerbate the Fiscal Burden?
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How Would Closing Loopholes for MNCs and Offshore Tax Havens Impact Federal Receipts, Growth, Employment?
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Background:
The U.S. ran large fiscal deficits in the late 1980s and early 1990s. The deficit shrank significantly during the late 1990s and moved to a surplus during 1998-2001. Notwithstanding rising entitlement spending and the 2001-2003 tax cuts, the fiscal deficit remained low during 2002-2007 as strong economic growth boosted revenues from the corporate and financial sectors. While cyclical factors such as plunging revenues due to the recession and high stimulus spending have raised the U.S. fiscal deficit during 2009-10, the deficit also suffers from structural problems—loose fiscal policy during the boom years, delayed tax and entitlement reforms and lack of political will to tackle the deficit. With an aging population and rising debt burden, an increasing share of government expenditure will be allocated to interest payments and entitlements in the coming years, reducing government's productive investment and crowding out private investment. After approving the US$787 billion fiscal stimulus package in February 2009, Washington will continue to implement smaller stimulus measures to support private deamnd and employment in the near term. But once the recovery sets in, the government needs to run a primary surplus by a combination of higher taxes and spending cuts, which might lead to a weaker economic recovery by itself. Not tightening the fiscal policy will raise long-term yields and pose a risk to U.S. debt ratings.
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Associated Readings
Blogs
Maverecon
Willem Buiter
Jun 12, 2009
The Fiscal Black Hole in the US
Analysis
Economist
Jun 10, 2009
America's debt is Barack Obama's biggest weakness
Analysis
Federal Reserve
Ben S. Bernanke
Jun 03, 2009
Current economic and financial conditions and the federal budget; Before the Committee on the Budget, U.S. House of Representatives
Analysis
Nouriel Roubini's Global EconoMonitor
May 28, 2009
When the public debt rubber meets the investors’ anxiety asphalt
Opinions
Financial Times
John Taylor
May 26, 2009
Exploding debt threatens America
Analysis
U.S. Treasury
May 2009
U.S. Department of the Treasury FY 2010 Budget in Brief
Analysis
Congressional Budget Office
March 2009
A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook
Research
The Brookings Institution
Alan J. Auerbach and William G. Gale
Feb 19, 2009
The Economic Crisis and the Fiscal Crisis: 2009 and Beyond
