Tax Notes

Sources of the Long-Term Fiscal Gap

Abstract

Over a permanent horizon, the fiscal gap now exceeds 7 percent of GDP under the CBO baseline and 10 percent of GDP under an adjusted baseline, substantially higher than a year ago. Allocating the fiscal gap to different programs is not straightforward, though. Most government programs are intended to be financed out of general revenue, and alternative, reasonable ways of allocating general revenue generate very different allocations of the fiscal gap across programs. In addition, focusing on a program-by-program basis tends to obscure the role of tax policy in generating a fiscal gap.