Today's Article
'At this moment, the
economy requires
substantial fiscal
stimulus to...avert a
deep and prolonged
recession,' states the
The Center on Budget
and Policy Priorities.
economy requires
substantial fiscal
stimulus to...avert a
deep and prolonged
recession,' states the
The Center on Budget
and Policy Priorities.
The American Spark
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Needed Stimulus Won't Add To Long-Term Deficit, Says Think Tank
By Cliff Montgomery - Jan. 29th, 2009
President Obama's $825 billion economic stimulus package is a much-needed boost that will not
considerably add to America's long-term deficit problem if implemented, according to the results of a think-
tank study released on Jan. 16th by The Center on Budget and Policy Priorities (CBPP).
As the report states, our federal deficit problem "is overwhelmingly the result of other factors — primarily the
rapid growth in health care costs, the aging of the population, and the expensive tax cuts enacted in 2001 and
2003."
The CBPP describes itself as "one of the nation’s premier policy organizations working...on fiscal policy and
public programs that affect low- and moderate-income families and individuals."
We quote the results of its study below:
"The $825 billion economic recovery package offered by congressional leaders will have only a very small
impact on the nation’s long-term fiscal problem, adding just 3 percent to the budget shortfall through 2050.
"While the package aims to put millions of unemployed Americans back to work, some question whether the
nation can afford to add such a large amount to [its] government debt in the face of the bleak long-term fiscal
outlook. Because the economic recovery measures would be temporary, however, they would have little effect
on the long-run deficit problem.
"Even without the proposed recovery legislation, 97 percent of the projected long-term fiscal shortfall would still
remain.
"In December the Center on Budget and Policy Priorities released new
projections of federal spending, revenues, deficits, and debt through 2050.
Those projections showed that without changes in policies, federal deficits
and debt in coming decades will grow to unprecedented levels and threaten
serious harm to the economy.
"Updating the projections to incorporate the proposed $825 billion recovery
package yields two key findings:
"Unlike the recovery proposals, whose costs largely disappear after a few years, these ongoing factors add to
the deficit by continually increasing amounts each year.
"For example, making the 2001 and 2003 tax cuts permanent without offsetting their cost adds over 15 times
as much to the long-term fiscal problem as the economic recovery package. Temporary costs — even if very
large in the short run — contribute much less to the fiscal gap than permanent costs, because their costs are
small relative to the size of the economy over several decades.
"At this moment, the economy requires substantial fiscal stimulus to increase aggregate demand and avert a
deep and prolonged recession — even if deficits exceed $1 trillion this year and next.
"As the economy recovers, however, policymakers should begin to implement a balanced approach to deficit
reduction through reforming the health care system, slowing the growth of federal expenditures, and
increasing federal tax revenues."
Like what you're reading so far? Then why not order a full year (52 issues) of the The American Spark e-
newsletter for only $15? A major article covering an story not being told in the Corporate Press will be
delivered to your email every Monday morning for a full year, for less than 30 cents an issue. Order Now!
By Cliff Montgomery - Jan. 29th, 2009
President Obama's $825 billion economic stimulus package is a much-needed boost that will not
considerably add to America's long-term deficit problem if implemented, according to the results of a think-
tank study released on Jan. 16th by The Center on Budget and Policy Priorities (CBPP).
As the report states, our federal deficit problem "is overwhelmingly the result of other factors — primarily the
rapid growth in health care costs, the aging of the population, and the expensive tax cuts enacted in 2001 and
2003."
The CBPP describes itself as "one of the nation’s premier policy organizations working...on fiscal policy and
public programs that affect low- and moderate-income families and individuals."
We quote the results of its study below:
"The $825 billion economic recovery package offered by congressional leaders will have only a very small
impact on the nation’s long-term fiscal problem, adding just 3 percent to the budget shortfall through 2050.
"While the package aims to put millions of unemployed Americans back to work, some question whether the
nation can afford to add such a large amount to [its] government debt in the face of the bleak long-term fiscal
outlook. Because the economic recovery measures would be temporary, however, they would have little effect
on the long-run deficit problem.
"Even without the proposed recovery legislation, 97 percent of the projected long-term fiscal shortfall would still
remain.
"In December the Center on Budget and Policy Priorities released new
projections of federal spending, revenues, deficits, and debt through 2050.
Those projections showed that without changes in policies, federal deficits
and debt in coming decades will grow to unprecedented levels and threaten
serious harm to the economy.
"Updating the projections to incorporate the proposed $825 billion recovery
package yields two key findings:
- First, the estimated long-term fiscal gap amounts to 4.3 percent of
- projected gross domestic product (GDP) through 2050. The fiscal gap
offers a convenient way of summarizing the long-term budget outlook
in a single number--it is the average amount of program reductions or
revenue increases that would be needed over the next four decades
to ensure that the debt is no larger in 2050 than it will be at the end of
2009, measured as a share of the economy. This means that stabilizing the nation’s finances through
2050 would require some combination of tax increases and spending cuts averaging 4.3 percent of GDP
per year, a very large amount.
- Second, the proposed $825 billion economic recovery package accounts for only 0.1 percentage point of
the 4.3 percent long-term fiscal gap. Thus, even if the economic recovery legislation were not enacted,
virtually all of the problem would still exist. The fiscal gap is overwhelmingly the result of other factors —
primarily the rapid growth in health care costs, the aging of the population, and the expensive tax cuts
enacted in 2001 and 2003.
"Unlike the recovery proposals, whose costs largely disappear after a few years, these ongoing factors add to
the deficit by continually increasing amounts each year.
"For example, making the 2001 and 2003 tax cuts permanent without offsetting their cost adds over 15 times
as much to the long-term fiscal problem as the economic recovery package. Temporary costs — even if very
large in the short run — contribute much less to the fiscal gap than permanent costs, because their costs are
small relative to the size of the economy over several decades.
"At this moment, the economy requires substantial fiscal stimulus to increase aggregate demand and avert a
deep and prolonged recession — even if deficits exceed $1 trillion this year and next.
"As the economy recovers, however, policymakers should begin to implement a balanced approach to deficit
reduction through reforming the health care system, slowing the growth of federal expenditures, and
increasing federal tax revenues."
Like what you're reading so far? Then why not order a full year (52 issues) of the The American Spark e-
newsletter for only $15? A major article covering an story not being told in the Corporate Press will be
delivered to your email every Monday morning for a full year, for less than 30 cents an issue. Order Now!
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