Budget Policy: Long-Term Implications of the Deficit

GAO discussed deficit reduction and better budgetary decisions for the nations long-term economic health. GAO noted that: (1) deficits erode the savings needed for private investment and future economic growth; (2) the share of national savings absorbed by the deficit grew from 2 percent in 1960 to 58 percent in 1990; (3) an influx of foreign capital sustained investment, but this reliance has its price because future profits and interest payments will flow abroad; (4) increasing national savings by reducing the deficit will promote greater investment and long-term economic growth; (5) using deficits to finance a high level of spending on investment programs could mitigate the dampening effects of deficits on economic growth; and (6) pressures created by deficits have caused a reduction in the share of the budget spent on infrastructure, research and human capital programs vital to long-term economic growth.