Long-term Federal government budget problems

Question: Explain why there are long-term Federal government budget problems.   Explain why the base-line forecast of the CBO is misleading. Include in your answer why solutions to the problem will necessarily involve a decision about which citizens will bear the burden of trying to balance the budget and how various general approaches can influence where the burden is likely to fall.


There are few serious issues facing the government fiscal position at the moment. Fiscal deficits have risen to a very high level. The fiscal debt downgrade by S&P has further added to the woes. Another dimension of the problem comes from the rising health care costs- for public and private. The healthcare costs are expected to rise quite significantly after the implementation of healthcare reform act, as shown by various studies by consulting firms. If the revenues do not increase, then the fiscal deficit will become unsustainable in the next two decades. However, to increase the revenue taxes must be raised. If taxes are raised, then there are other issues like decreased aggregate demand and a lower savings ratio. This will increase the share of government in the economy and the industries and privates sector's role will decline. The need of the hour, therefore, is to find ways to control the healthcare cost. The government and the private sector must find some way to control it. Also, the role of government in the economy should be maintained at a level which is sustainable, from the growth and regulatory point of view.

If a tax increase takes place, it should be designed in way that people who have high wealth and income, should contribute more. The general observation, however, remains the same: people have to share the burden as they did reap the rewards in good times. Control of cost of healthcare is something which can be achieved through scale operations and transferring some cost to the employees. Again, this means an increased burden on the households. Whichever way is taken to tackle the issue, the households will have to bear the burden and government and private sector employers need to come out with optimal strategies for this transition in costs.

The CBO report forecasts the US economy to be growing at 2.6% in 2012 while the Goldman Sachs forecasts stand at 2.1%. Furthermore, the CBO predicts that the debt will increase by  $3.48 trillion over the next 10 years which will mean that the debt burden will fall to 61%. However, in an earlier forecast in January, it forecasted the debt to GDP ratio to be 76.7%.  These statements are highly fluctuating, and the forecasts are changing quite heavily in such a small duration of time, which makes the CBO forecasts to be misleading. 

   Related Questions in Macroeconomics

  • Q : When Macroeconomic theory least related

    Macroeconomic theory would be least related in analyzing the results of: (w) optional ways of funding deficits in international trade. (x) U.S. federal budget deficits. (y) consumer items purchased through middle-income families. (z) deficit spending through the United Nations.

  • Q : What are the strength and weakness What

    What are the strength and weakness of using per capital national income? give explained answer for query

  • Q : Inflation Effect The economic effects

    The economic effects of inflation are all pervasive. It affects all those who depend on the market for their livelihood. The effects of inflation may be favorable or unfavorable, and low or high depending on the rate of inflation. For example a galloping the hyper inf

  • Q : Weighed marginal cost and marginal

    Cite examples of recent decisions that you made in which you, at least implicitly, weighed marginal cost and marginal benefit?

  • Q : Functions of central bank Describe

    Describe functions of central bank?


    (A) Issue of currency: Central bank is the only authority for the issue of currency

  • Q : Expenditure of money on party effects

    When you pay a straight A student in advance to write up your term paper and that person expends the money on a party and then, hung-over, can’t do a good job and hence you wind up with an F for submitting sloppily written gibberish, you encompass just suffered

  • Q : Objective of government Budget Give

    Give some objective of government Budget.

    Answer: The objectives which are pursued by government via the budget are as follows:

    A) To attain economic growth.
    B) To decrease in equalities in income and wealth.

  • Q : Is sale of scooter is national income

    Describe whether the sale of old scooter is comprised in national income?

  • Q : Transfer of wealth problem The transfer

    The transfer of wealth from developed countries to oil exporting countries (abbreviated as OPEC) which followed sky-rocketing oil prices in the year 1970s points out that the price elasticity of demand for oil was: (i) Unitary. (ii) Relatively high. (

  • Q : Role of price in market economies What

    What is the role of price in market economies?

2015 ©TutorsGlobe All rights reserved. TutorsGlobe Rated 4.8/5 based on 34139 reviews.