{"id":108,"date":"2025-06-03T13:59:09","date_gmt":"2025-06-03T17:59:09","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=108"},"modified":"2025-06-03T13:59:09","modified_gmt":"2025-06-03T17:59:09","slug":"magical-thinking-wont-fix-the-budget-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2025\/06\/03\/magical-thinking-wont-fix-the-budget-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"Magical Thinking Won\u2019t Fix the Budget \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"<p><span data-contrast=\"auto\">The Congressional Budget Office (CBO) projects that \u201c<\/span><a href=\"https:\/\/www.cbo.gov\/system\/files\/2024-05\/60169-scenarios.pdf\"><span data-contrast=\"none\">if current laws governing revenues and spending generally remained unchanged, the federal budget deficit would<\/span><\/a><span data-contrast=\"auto\"> increase significantly in relation to gross domestic product (GDP) over the next 30\u202fyears, driving up federal debt\u2026 from 99 percent of GDP in 2024 to 166\u202fpercent of GDP in 2054\u2014exceeding any previously recorded level <\/span><span data-contrast=\"none\">.\u201d<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The remedy for a budget deficit and debt for a nation, firm, or household is to reduce expenses, increase income, or some combination of both. Though unlike states, firms, and households, the Federal government has an outsized ability to borrow because it can ultimately print up the money to cover its debts. But this is an obvious road to ruin.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Republican leaders propose to reduce the size of the federal deficit and debt by reducing waste, fraud, and abuse, as well as increasing tax revenue by increasing economic growth through reducing unproductive regulations and selectively lowering taxes.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Democratic leaders propose reducing the federal deficit and debt by raising taxes on the rich and increasing economic growth through expanding public works and government-directed social spending.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">However, before one examines the merits and flaws of these approaches, it is helpful to examine the federal budget in more detail. <\/span><a href=\"https:\/\/www.cbo.gov\/system\/files\/2024-12\/60884-NIPA.pdf\"><span data-contrast=\"none\">Recently, the CBO issued a report detailing current and projected details of the Federal budget<\/span><\/a><span data-contrast=\"auto\">. In 2024, the Feds collected $5.037 trillion but spent $6.828 trillion, running a deficit of $1.791 trillion. The deficit financed 26% of federal spending and was <\/span><a href=\"https:\/\/www.imf.org\/en\/Publications\/WEO\/weo-database\/2024\/October\/weo-report?c=111,&amp;s=NGDPD,PPPGDP,NGDPDPC,PPPPC,&amp;sy=2022&amp;ey=2027&amp;ssm=0&amp;scsm=1&amp;scc=0&amp;ssd=1&amp;ssc=0&amp;sic=0&amp;sort=country&amp;ds=.&amp;br=1\"><span data-contrast=\"none\">over 6% of Gross Domestic Product<\/span><\/a><span data-contrast=\"auto\">. The CBO projections for the next ten years show little deviation from this path under current law.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Looking at spending, federal entitlement spending to persons (think Social Security), plus transfers to state and local governments, plus federal interest payments came to $5.237 trillion. In other words, if the Federal government eliminated all spending on national defense and other federal activities not listed above, such as national parks, border patrol, and environmental protection, it would still run a deficit of $200 billion. We don\u2019t see how the Federal government can reduce spending or increase revenue without inflicting hardship on many people.\u00a0\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The bottom line is that while some combination of the approaches offered by both sides of the aisle likely have some merit, we should beware. Politicians of all persuasions are prone to provide simplistic solutions best described as magical thinking. There are no easy solutions, just tough trade-offs.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Congressional Budget Office (CBO) projects that \u201cif current laws governing revenues and spending generally remained unchanged, the federal budget deficit would increase significantly in relation to gross domestic product (GDP) over the next 30\u202fyears, driving up federal debt\u2026 from 99 percent of GDP in 2024 to 166\u202fpercent of GDP in 2054\u2014exceeding any previously recorded [&hellip;]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[1098,1096,1092,1093,1099,1095,125,42,55,249,160,1064,1097,127,1094,79,248],"class_list":["post-108","post","type-post","status-publish","format-standard","hentry","category-government","tag-budget","tag-budget-deficit","tag-cbo","tag-congressional-budget-office","tag-federal-budget","tag-federal-debt","tag-federal-government","tag-gdp","tag-government","tag-government-spending","tag-national-defense","tag-politicians","tag-public-works","tag-regulation","tag-revenues","tag-social-security","tag-tax"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.6 - 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