Fiscal Policy After ATRA

The fiscal cliff–averting American Taxpayer Relief Act (ATRA) significantly changed the policy landscape for what looks to be an extended budget debate over the year. For one, most (though not all) policy uncertainty over expiring tax cuts and credits was settled for the foreseeable future. Congress is very unlikely to pick up any new revenue measures this year.

But the bill also highlights how far we are from meaningful deficit reduction. My colleagues and I at the Tax Policy Center have examined what happens to both spending and revenue paths, under the new law and under a scenario that incorporates other likely policies, including the permanent extension of current payment rates to Medicare physicians and a failure to abide by the spending sequester (which, you’ll recall, was a result of the super committee’s failure to reach a budget agreement in late 2011).

We also make an important assumption about the direction of discretionary spending in the long run. Under current law, discretionary spending, on both the defense and domestic sides of the budget, is scheduled to drop to historic lows. Under our “plus likely policies” scenario, we assume that discretionary spending doesn’t fall below its historical lows of 3 percent of GDP for defense and 3.2 percent of GDP for domestic spending. Those lows occurred in 1999 following a period of relative peace, rapid economic expansion, and few of the demographic pressures we now face.

Ben Harris over at TaxVox has more.

Federal Deficits Under Various Budget Assumptions

5 Comments on “Fiscal Policy After ATRA”

  1. Greene, Joshua says:

    Are the data underlying the estimates reported in this article available? It would be helpful to see the forecasts for nominal GDP, the post-ATRA budget, and the post-ATRA budget with likely modifications, to see what adjustments are needed to achieve different debt-to-GDP ratios in FY 2022 and beyond. Please advise how the data could be obtained. Thank you!

  2. I expect we will have a financial panic in the health insurance industrty once investors realize that they are more risk averse than the uninsured, whose subsidies will be inadequate to buy the policies they need. This will lead to at least a subsidized public option (requiring a new payroll or consumption tax) if not full-on single payer if they wait for the market to implode. This will make Medicare and Medicaid fixes look like a walk in the park.

  3. Dennis Pfleger says:

    We were classmates at UD back in the 60’s. I’d like to encourage you to come over to the 45 Th. reunion June 7. Several of us from Math/computer science who knew you will be there. Ralph Renneker, Bill Scharf, Jeanne Reager, Steve Mahrt. Come to the main event, the class party on Friday and hang with us.

    Dennis Pfleger

    P.S. I’m enjoying your blog.

    P.P.S. I also lost my wife suddenly and unexpectedly. Still dealing with it. A topic for discussion sometime.

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