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AIMD-94-83R 1 (1994-02-22)

handle is hein.gao/gaobackmt0001 and id is 1 raw text is: .Comptroller General of the United Stues WWnem D.C. 2064 /150 Rs B-256507 February 22, 1994 The Honorable Paul Sarbanes United States Senate Dear Senator Sarbanes: This letter is in response to your letter dated February 17, 1994, in which you asked some questions about the assumptions in our June 1992 report, Budget Policy: Prompt Action Necessary to Avert Long-Term Damage to the Economy (GAO/OCG-92-2, June 5, 1992). You also asked about the current long-term deficit outlook. In our 1992 report, we looked at the trends driving the deficit over the long-term. We developed four scenarios to show the implications of various fiscal policies in dealing with the deficit. These scenarios, projected to the year 2020, were: (1) doing nothing and allowing the deficit and cumulative debt to grow unchecked, (2) holding the deficit to 3 percent of gross national product (GNP), (3) achieving a balanced budget early in the next century and maintaining balance thereafter, and (4) achieving a balanced budget and then moving into surplus. You asked whether our analysis considered the costs or benefits of adopting a balanced budget amendment to the Constitution. It did not. GAO has long supported making the hard programmatic policy choices that would lead the country to a more balanced budget. We have not endorsed a balanced budget amendment to achieve this goal. You also asked whether our economic model considered short- or medium-term effects of deficit reduction on the economy. As we stated in our report, our model assessed the impacts of deficit reduction scenarios on long-term economic growth and was not designed to forecast the short-term cyclical effects of macroeconomic policy. However, these scenarios were constructed to achieve deficit reduction of no more than 0.5 percent of GNP per year--a path that is gradual enough to permit monetary policy to largely offset the GAO/AIMD-94-83R Budget Deficit

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