VoxTalks Economics
S7 Ep44: The US is in a fiscal mess
Sep 20, 2024
Giancarlo Corsetti, a fiscal policy expert, and Riccardo Trezzi, an analyst of national debt challenges, tackle the alarming rise of U.S. federal debt. They discuss the imminent budget deficits and the stark reality of rising interest payments. Corsetti and Trezzi outline the urgent need for tax hikes and significant government spending cuts to manage this fiscal crisis. They warn against short-term fixes and stress the importance of bipartisan reform to safeguard the economy's future and maintain the dollar's global standing.
27:45
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Quick takeaways
- The US federal deficit is expected to reach 7% of GDP in 2024, driven primarily by rising mandatory spending and low tax revenues.
- To stabilize the growing federal debt projected to hit 120% of GDP by 2034, significant fiscal policy changes involving spending cuts and tax increases are essential.
Deep dives
Current US Deficit Concerns
The US is currently facing a significant deficit projected to reach approximately 7% of GDP in 2024, which is notably higher than the historical average of about 4%. This elevated deficit persists despite a recovering economy since 2022, marking the largest deficit recorded outside of recessions or wartime. A major contributor to this deficit is the rise in mandatory spending, particularly on social security and healthcare programs, which are growing due to an aging population. Additionally, low tax revenues exacerbate the issue, with tax collections currently falling 1 percentage point below historical norms.
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