Macro Research Paper
The Great Debt Shift from 2000 to 2012
The United States is facing a structural budget deficit in recent years. The fiscal situation has an increasingly dire and unsustainable outlook over the next 10 years and beyond. However, looking back ten years before, when George Bush took office at the beginning of 2001, the federal government was running a substantial budget surplus and projected rising surpluses. Here comes to a question: how did federal government get into this fiscal mess. My paper dedicates to examine the federal budget balance and government policies over last ten years and analyzes the reasons for this dramatic change from substantial surpluses to massive deficits. Furthermore, I will also shed a light on the dilemma facing Obama administration to cut the deficits. At the beginning of this decade, the US fiscal policy was bright. After running deficit every year from 1970 to 1997, the federal budget was in surplus of $236 billion n the fiscal year of 2000. The surplus accounted for 2.4 percent of GDP. Future fiscal prospects looked promising as well. The Congressional Budget Office at that time predicted that “if current policies remain in place, the surplus will continue to increase after 2000” (CBO, 2000). The accumulated surpluses for year 2010 were projected to total $3.2 trillion under the inflated baseline and $4.2 trillion under the freeze or capped baseline. Despite the shortfalls in Medicare and Social security finances, estimates of the long-term fiscal outlook showed that government was in a manageable shape at least for the following 70 years (Auerbach and Gale, 2000).
However, the result turns out to be completely different. According CBO recent report, the budget deficit for fiscal year 2012 has surpassed the $1 trillion mark. Although the official budget figures have improved from a year ago as a result of both higher tax receipts and lower government spending, realistic budget projections continue to show a troublesome
The United States is facing a structural budget deficit in recent years. The fiscal situation has an increasingly dire and unsustainable outlook over the next 10 years and beyond. However, looking back ten years before, when George Bush took office at the beginning of 2001, the federal government was running a substantial budget surplus and projected rising surpluses. Here comes to a question: how did federal government get into this fiscal mess. My paper dedicates to examine the federal budget balance and government policies over last ten years and analyzes the reasons for this dramatic change from substantial surpluses to massive deficits. Furthermore, I will also shed a light on the dilemma facing Obama administration to cut the deficits. At the beginning of this decade, the US fiscal policy was bright. After running deficit every year from 1970 to 1997, the federal budget was in surplus of $236 billion n the fiscal year of 2000. The surplus accounted for 2.4 percent of GDP. Future fiscal prospects looked promising as well. The Congressional Budget Office at that time predicted that “if current policies remain in place, the surplus will continue to increase after 2000” (CBO, 2000). The accumulated surpluses for year 2010 were projected to total $3.2 trillion under the inflated baseline and $4.2 trillion under the freeze or capped baseline. Despite the shortfalls in Medicare and Social security finances, estimates of the long-term fiscal outlook showed that government was in a manageable shape at least for the following 70 years (Auerbach and Gale, 2000).
However, the result turns out to be completely different. According CBO recent report, the budget deficit for fiscal year 2012 has surpassed the $1 trillion mark. Although the official budget figures have improved from a year ago as a result of both higher tax receipts and lower government spending, realistic budget projections continue to show a troublesome
Bibliography: Auerbach, Alan J. and William G. Gale. 2000. “Perspective on the Budget Surplus.” National Tax Journal. Washington: September, 53(3):459-73. Congressional Budget Office. 2000. “The budget and economy outlook: Fiscal years 2001-2010.” Washington: Congressional Budget Office, January 2000. Congressional Budget Office. 2010. “Funding for Operations in Iraq and Afghanistan and Other Related Activities.” Washington: Congressional Budget Office, January 2010. Congressional Budget Office. 2012. “Report on the Troubled Asset Relief Program.” Washington: Congressional Budget Office, March 2012. Congressional Budget Office. 2012. “An update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022.” Washington: Congressional Budget Office, August 2012. Congressional Budget Office. 2012. “Choices for Deficit Reduction.” Washington: Congressional Budget Office, November 2012. Ettlinger, Michael and Michael Linden. 2009. “Who’s to Blame for the Deficit Numbers.” Center for American Progress. Washington: August. Pew Fiscal Analysis Initiative. 2011. “The Great Debt Shift.” The PEW Charitable Trusts, April 2011. Thornton, Daniel L. 2012. “The U.S. Deficit/Debt Problem: A Longer-Run Perspective.” Federal Reserve Bank of St. Louis Review. St. Louis: November/December, 94(6):441-55.