The U.S. fiscal imbalance—the excess of what we expect to spend, including repayment of our debt, over what government expects to receive in revenue—is large and growing. And with politicians proposing large new expenditures, little is being done to rectify the country’s fiscal health. Although some policymakers argue that fiscal meltdowns have never happened in U.S. history and that therefore “this time is no different,” the reality is that the nation’s fiscal situation has been deteriorating since the mid-1960s, is far worse than ever before, and could lead to a fiscal crisis if no major spending adjustments occur in the next few decades.
Committed to bring attention to this growing danger, the Cato Institute inaugurated a significant project to investigate and document the federal government’s current financial position and the implications of federal fiscal policies and practices on the government’s financial sustainability. Two key project reports were to be crafted and distributed, both written by Jeffrey Miron, director of undergraduate studies in the Department of Economics at Harvard University.
The first report, issued several months ago, was Fiscal Imbalance: A Primer – which detailed the key principles necessary for understanding the true state of government financial health.
We are now able to provide, for free reading and downloading, the project’s second and most advanced report – U.S. Fiscal Imbalance over Time: This Time Is Different. This paper illustrates that while fiscal meltdown may not be imminent, the nation’s fiscal situation has been deteriorating since the mid 1960s, is far worse than ever before, and will continue to deteriorate if no adjustments occur as time moves forward.
The paper projects fiscal imbalance as of every year between 1965 and 2014, using data-supported assumptions about GDP growth, revenue, and trends in mandatory spending on Social Security, Medicare, Medicaid, and other programs. What does the paper reveal? The only way to restore fiscal balance is to scale back mandatory spending policies – particularly on large health care programs. This is a vast challenge of paramount importance.
It is our goal – and Cato’s ongoing commitment – that these reports help limit the unsustainable spending the federal government is undertaking, and provide effective strategies for diminishing our government’s dangerous fiscal instability.