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Congressional Budget Office
- Consists of 250 people working for the U.S. Congress.
- Provides objective, nonpartisan analysis of budget and
economic issues.
- Makes no policy recommendations.
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Exit Strategy for Fiscal Policy Douglas W. Elmendorf Director - - PowerPoint PPT Presentation
Exit Strategy for Fiscal Policy Douglas W. Elmendorf Director - - PowerPoint PPT Presentation
Congressional Budget Office Presentation to The Group of Thirty Exit Strategy for Fiscal Policy Douglas W. Elmendorf Director December 4, 2009 Congressional Budget Office Consists of 250 people working for the U.S. Congress.
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Given the likely evolution of the economy, the current path of fiscal policy poses two central challenges to macroeconomic stability:
- Fiscal stimulus will be withdrawn very rapidly
between 2010 and 2012.
- Fiscal stimulus will not be reduced any further
after 2012. Fiscal Policy Challenges
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Slow Return to Normalcy (from August Forecast)
Unemployment Rate in Percent
Calendar Year 4
Actual Projected
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Withdrawal of Fiscal Stimulus
Fiscal Year
Federal Deficit as a Percentage of GDP
5 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 4 6 8 10 12 Baseline Excluding the American Recovery and Reinvestment Act of 2009
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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 1 2 3 4
High Estimate Low Estimate
Millions of Jobs
Calendar Year 6
Estimated Effect of the American Recovery and Reinvestment Act of 2009 on Employment
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Fiscal Policy Options to Boost Output and Employment
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- Encourage Job Creation Directly
– Job tax credits – Payroll tax holiday – Government jobs
- Support Businesses
– Investment incentives – Improved access to credit
- Stabilize Mortgage and Housing Markets
– Expansion of loan guarantees or mortgage modification
- Boost Demand
– Aid to states – Infrastructure projects – Extension of 2001 and 2003 tax cuts – Indexing of Alternative Minimum Tax (AMT)
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Effect of Extending the 2001 and 2003 Tax Cuts and Indexing the AMT
Federal Deficit as a Percentage of GDP
Fiscal Year 8 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2 4 6 8 10 12 Baseline Extend Tax Cuts and Index AMT
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Rising Debt Burden
Federal Debt Held by the Public as a Percentage of GDP
9 Fiscal Year
1940 1950 1960 1970 1979 1989 1999 2009 2019 20 40 60 80 100 120 20 40 60 80 100 120 Actual Projected Extend Tax Cuts and Index AMT Baseline
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Outlays for Key Federal Programs Will Soon Exceed Total Federal Revenues
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Percentage of GDP
Fiscal Year
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 14 16 18 20 Revenues, with Tax Cuts Extended and AMT Indexed Outlays for Medicare, Medicaid, Social Security, Defense, and Net Interest Actual Projected
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Population Aging
1962 1972 1982 1992 2002 2012 2022 2032 2042 2052 2062 2072 10 20 30 40 50 Actual Projected
Population Age 65 or Older as a Percentage of the Population Ages 20 to 64
11 Fiscal Year
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Health Care Reform and Budget Deficits CBO estimates that the health care reform proposals that have passed the House and are being considered in the Senate would reduce budget deficits slightly. Commonly expressed concerns:
- CBO is underestimating the ultimate costs of the new
subsidies to buy health insurance.
- Congress will not allow the Medicare spending cuts in
the proposals to take effect.
- Spending cuts and new revenues would pay for a new
program rather than cover the costs of existing ones.
- The proposals are missing opportunities to reduce
health care spending more significantly.
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Long-Run Fiscal Policy
- The United States faces a fundamental disconnect
between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services.
- Widespread concern about the unsustainable long-
run path of fiscal policy matters in the short run as well, because it will (at some point) push up interest rates and will (quickly) reduce political support for fiscal actions to boost output and employment.
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