Answer to Question #18317 in Economics of Enterprise for monica

Question

explan how if we allow business cycles to run their course,it is possible that te federal budget will balance itself, especially if one considers the impact long-run growth has on tax revene.

Answer 1

Can Congress balance the federal budget without a tax increase?

Indeed it is possible,but to do it Congress would have to undertake fiscal policy changes of
Herculean proportions. Namely: radically changing Social Security's benefit for
retirees, turn Medicaid over to the states, and implement other spending cuts.

First, a little background regarding how the 'normal era' budget deficit grew to about $460 billion in FY2008, and to more than $1.4 trillion in the
bank bailout/recession era. While both political parties have done a poor job
reining-in spending, the nation's fiscal deterioration in 2001 from budget
surplus to budget deficit can be traced to two factors: the $1.1 trillion 2001 Bush tax cut and increased post-9/11 defense spending for anti-terrorism efforts, and for the Iraq/Afghanistan wars.

Had the United States rescinded approximately one-half of the 2001 tax cut at the start of the Iraq war in 2003, the nation's fiscal picture would be
much more manageable today. The nation didn't, and that's the main reason the
U.S. is looking at a Congressional Budget Office baseline structural deficit of about $500-550 billion annually through 2015, even after the end of bank bailout and fiscal stimulus spending.