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1 1 (December 8, 2022)

handle is hein.crs/govejrf0001 and id is 1 raw text is: Congressional Research Servec I forming the legislative debate since 1914 0 Updated December 8, 2022 Debt and Deficits: Spending, Revenue, and Economic Growth The Constitution provides Congress with the authority to manage the federal budget through its power of the purse. This In Focus summarizes federal budget and borrowing trends and discusses related issues with spending, revenues, and economic policy. The Federal Budget Deficit The federal government incurs a budget deficit when total spending exceeds revenues over the course of a fiscal year. A budget surplus occurs when revenues exceed outlays. Budget outcomes depend on general economic conditions. Deficits tend to decline in periods of high economic growth due to both increased revenues (through a rise in earnings and subsequent tax payments) and reduced outlays (through a decline in demand for unemployment benefits and other programs). Conversely, deficits tend to increase in periods with lower economic growth. The federal budget has produced budget deficits in every year since FY2001. The historic economic shocks of the 2007-2009 Great Recession and COVID-19 pandemic, along with the ensuing federal responses generated the five largest real federal deficits (measured as a share of total economic output) since World War II, with real deficits averaging 9.0% of gross domestic product (GDP) in FY2009-FY2011 and 13.7% of GDP in FY2020-FY2021. The average real deficit in other years since FY2001 (3.2% of GDP), however, still exceeded the comparable amount from FY1973 through FY2001 (2.5% of GDP). The Congressional Budget Office (CBO) May 2022 Budget and Economic Outlook projects a federal deficit equal to 3.7% of GDP in FY2023. Looking ahead, the CBO 2022 Long-Term Budget Outlook projects that under current law deficits will remain higher than their historical average for the next 30 years, with deficits of 6.1% of GDP in FY2032 and 11.1% of GDP in FY2052 (see Figure 1). Federal Debt Federal debt is the accumulation of all historical government borrowing activity. Debt levels increase when there are budget deficits, net outflows for federal credit programs, or increases in intragovernmental debt. Treasury manages debt in a manner that maximizes transparency and flexibility while minimizing interest costs. The debt measurement generally of most interest to economists is publicly held debt, which excludes debt held in federal government accounts (i.e., intragovernmental debt). Changes in federal debt reflect implicit policy choices concerning the distribution of government activity across generations. Increases in real debt in one period may constrain the choices available in later periods. It may also lead future generations to bear the financial cost of choices made by previous generations while realizing little to no benefit of those choices. Large and persistent debt levels may also reduce public confidence in the government's ability to fulfill its borrowing obligations, which could increase long-term borrowing costs. Debt levels generally have grown in recent decades. Publicly held debt is projected to be 96% of GDP at the end of FY2023, roughly triple the value recorded at the end of FY2001 (32% of GDP). CBO's long-term forecast projects accelerated increases in publicly held debt in ensuing decades, reaching 110% of GDP by FY2032 and 185% of GDP in FY2052. Congress can control the federal debt through the statutory debt limit, which constrains the amount Treasury may borrow. The debt limit is currently set to $31.4 trillion, which under current projections will be reached sometime in the next few months. Trends in Spending and Revenue Figure I. Spending, Revenues, and the Deficit: FY2023, FY2032 and FY2052 30 % of GDP 25 20 15 10 5 - 0 - Deficit- Revenues FY2023 FY2032 FY2052 Source: CRS graphic using Congressional Budget Office data. FY2032 and FY2052 values are baseline projections. Mandatory Spending Mandatory spending covers spending for entitlement and other programs not controlled by annual appropriations. It includes spending for Social Security, Medicare, Medicaid, and other health and old-age programs. Mandatory outlays are projected to be 14.0% of GDP in FY2023 (62% of total federal spending), above the FY1973-FY2022 average of 10.9% of GDP (52% of total spending), reflecting a gradual increase in mandatory spending in recent decades. The latest CBO long-term baseline projects that mandatory spending will continue to grow under current law, equaling 14.9% of GDP in FY2032 (which would be the highest value on record) and 17.0% of

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