The U.S. Fiscal Imbalance: June 2022
[from Penn Wharton, University of Pennsylvania]
We estimate that the U.S. federal government faces a permanent fiscal imbalance equal to over 10 percent of all future GDP under current law where future federal spending outpaces tax and related receipts. Federal government debt will climb to 236 percent of GDP by 2050 and to over 800 percent of GDP by year 2095 (within 75 years).
- We estimate that, under current law, the U.S. federal government faces a permanent present-value fiscal imbalance of $244.8 trillion, or 10.2 percent of all future GDP. This imbalance is equal to 52.7 percent of all future government receipts, 35.6 percent of all future expenditures, or some combination of both.
- Even ignoring the negative macroeconomic feedback effects of rising debt on GDP in these “conventional” estimates, government debt climbs to 236 percent of GDP by 2050. Thereafter, debt continues to climb and exceeds over 800 percent of GDP within 75 years, by the year 2095.
- Under the alternative “no-sunset” policy—where sunsets in 2017 Tax Cuts and Jobs Act are not enforced—the fiscal imbalance increases to $276.4 trillion, or 11.5 percent of all future GDP.
- For the major entitlement programs—including Social Security, Disability and Medicare Part A—about one-half (54 percent) of the fiscal imbalance in perpetuity comes from past and current generations receiving more in benefits than they paid in taxes.
Read the full analysis [archived PDF].
View the data [archived XLSX].
Brief based on work by Agustin Diaz, Jagadeesh Gokhale and Kent Smetters. Prepared by Mariko Paulson.
Thursday, 14 April 2022, 8:30-10:00 AM EDT
- What should be the role of development banks in closing financing gaps?
- What tools or guidance documents for responsible borrowing and lending exist, and how can they be useful?
- How can the global community better support the most vulnerable countries and ease their debt burdens?
Two years into the pandemic, COVID-19 has exposed and exacerbated global inequalities and set back hard-earned progress towards achieving the Sustainable Development Goals (SDGs). It is critical that the global community work together to avoid the catastrophic situation in which one group of countries recovers, and another sinks deeper into a cycle of poverty and unsustainable debt. To support efforts to overcome the great finance divide, the United Nations Department of Economic and Social Affairs (UN DESA) will host a discussion with experts exploring ideas to improve access to affordable financing as well as how to resolve situations of unsustainable sovereign debt. Speakers will examine the latest findings from UN DESA’s new report, the 2022 Financing for Sustainable Development Report.
Register here by 13 April 2022.
The event is free and open to all, and will be streamed live on UN DESA’s Facebook page. It will be held in English with captions available in Arabic, Chinese, English, French, Russian and Spanish, and translation into American Sign Language. The event is made possible by the United Nations Peace and Development Trust Fund. All are welcome!
The European Central Bank’s Macroprudential Bulletin provides insight into the work they are currently doing in the field of macroprudential policy. Their goal is to raise awareness of macroprudential policy issues in the euro area by making their ongoing work and thinking in this field more transparent, and to encourage broader discussion on these key issues.
Reforming money market funds
Money market funds perform a key function for the financial system by linking the short-term funding and cash-management needs of various market participants. Proposals to reform the regulation of these funds and enhance the sector’s resilience are assessed in this issue of the Macroprudential Bulletin.
At the onset of the coronavirus pandemic, money market funds proved particularly vulnerable when faced with severe market disruption. This article looks at specific policies to address the liquidity risk of these funds and ensure they can deal with large and unexpected outflows under similar periods of stress.
[Archived PDF of full article]
Public debt assets tend to be easier to draw down and sell during market stress than private sector debt. Having a minimum public debt quota for private debt money market funds could increase their shock-absorbing capacity. What are the costs and benefits of such a proposal?
[Archived PDF of full article]