Budget Policy:

Long-Term Implications of the Deficit

T-OCG-93-6: Published: Mar 25, 1993. Publicly Released: Mar 25, 1993.

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GAO discussed the importance of deficit reduction to the United States' long-term economic health. GAO noted that: (1) the increasing proportion of national savings absorbed by the deficit reduces the government's ability to stimulate private investment and economic growth; (2) the continuation of current fiscal policies would result in the deficit increasing to 20 percent of the gross national product by 2020; (3) failure to reduce the deficit is not a suitable economic policy, and the impending financial crisis would force government action because of the symbiotic relationship between increasing debt, interest rates, and economic health; (4) the forces driving the deficit increase include increased health spending due to a growing elderly population, debt interest payments, and increased retirement costs due to a decline in the ratio of workers to retirees; (5) the timing of deficit reduction is significant to the amount of sacrifice required and the extent of economic benefits realized; (6) implementing a balanced budget or surplus path would require significant near-term sacrifices, but would yield long-term economic benefits; (7) an option that would attempt to hold the deficit at 3 percent would require less near-term sacrifice, but would not resolve deficit problems or address growing interest rates; (8) the 1992 deficit was approximately $40 billion worse than the predicted deficit and totalled $290 billion; and (9) to control the deficit, the government needs to attempt to control and offset health care, program, and future liability costs without reigniting inflation.

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