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GAO-24-106056 1 (2023-11-16)

handle is hein.gao/gaoppb0001 and id is 1 raw text is: Why This Matters Key Takeaways During economic downturns, the federal government can use tax and spending policies to support economic growth and limit the detrimental effects on individuals and families. The federal budget contains mechanisms-known as automatic stabilizers- that alter tax and spending levels in response to changes in economic conditions without direct intervention by policymakers. For example, in an economic downturn-when incomes and the employment level fall-tax liabilities may decrease, and more people may become eligible for certain government benefits, such as unemployment insurance and food assistance. Conversely, when incomes and the employment level rise, tax liabilities may rise, and fewer people may be eligible for government benefits. Given the key role that automatic stabilizers can play in supporting the economy and the well-being of individuals and families, it is important to understand how effectively they are operating. It is also important to understand their impact on the broader federal budget. We have previously reported that the federal government faces an unsustainable long-term fiscal future. Debt held by the public is projected to exceed its historical high of 106 percent of gross domestic product (GDP) within the next 10 years. Well-designed automatic stabilizers could help the federal government balance the short-term need to promote growth during an economic downturn with longer term concerns about fiscal sustainability. You asked us to review several issues related to automatic stabilizers. This report examines the effects of automatic stabilizers on the economy, the well- being of individuals and families, and the federal government's fiscal condition, based on an extensive review of academic and government literature. . Studies we reviewed showed that automatic stabilizers reduced the detrimental effects of recent economic downturns. They prevented the economy from getting worse by generating additional economic activity. Studies showed that during economic downturns, programs with an automatic stabilizer component had various positive effects on the well-being of individuals and families, such as alleviating poverty and supporting positive health outcomes including improved nutrition and healthy birth weights. However, it is difficult to isolate the effects of automatic stabilizers, because studies frequently did not separately analyze the automatic portions of these programs and discretionary changes made by policymakers to address economic downturns. . Automatic stabilizers contributed to federal deficits in the wake of recent economic downturns, according to Congressional Budget Office (CBO) analysis. However, they are not the key driver of debt over the long-term. Page 1 GAO-24-106056 Economic Downturns

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