The One Big Reason We Can’t Really Cut the Federal Deficit

It is tough to be a deficit hawk.

“Budget News” from xkcd

Rather than our typical spike in wartime spending, we have a peacetime deficit. (Please note that the federal deficit is just how much spending exceeds revenue during one year.):

Debt History From the CBO

Spending for…

• Social Security
• Medicare
• Medicaid
• Children’s Health Insurance Program (CHIP)
• ACA health insurance exchanges’ subsidies

…has become an increasingly large share of GDP. Cutting these big spending categories would affect well-being, be unpopular and perhaps contrary to American values.

From: CBO

And, the cuts would have to be relatively large:

Deficit Cuts from CBO

More specifically, the…

• Aging Baby Boomers
• Health care costs per beneficiary rising faster than projected per capita GDP
• Income assistance initiatives from Medicaid
• Health insurance subsidies from the ACA

…are fueling the spending that is so tough to cut:

From CBO

And so, as economists, we can say that the tradeoffs are the one big reason it is so tough to cut the deficit.

Sources and resources: Having become a fan of xkcd, again for today, I discovered a relevant “cartoon” for all of the facts, graphs, data from the Congressional Budget Office’s “2013 Long-Term Budget Outlook” report. At econlife, we last looked at the deficit here and here.