The Budget Outlook and Options for Fiscal Policy

Alan J. Auerbach,
Alan Auerbach Headshot
Alan J. Auerbach Robert D. Burch Professor of Economics and Law - Economics Department, UC-Berkeley, Director - Robert D. Burch Center for Tax Policy and Public Finance
Peter R. Orszag, and
Peter R. Orszag Vice Chairman of Investment Banking, Managing Director, and Global Co-Head of Healthcare - Lazard
William G. Gale
William G. Gale The Arjay and Frances Fearing Miller Chair in Federal Economic Policy, Senior Fellow - Economic Studies, Co-Director - Urban-Brookings Tax Policy Center

April 1, 2002


This paper examines the federal budget outlook and evaluates alternative fiscal policy choices. Official projections of the federal budget surplus have declined dramatically in the past year. Adjusting such measures for the treatment of retirement trust funds, realistic estimates of future tax and spending levels, and longer time horizons implies an even bleaker picture. Freezing the tax cut passed last year would be a significant step toward fiscal responsibility. In contrast, the Bush Administration’s budget proposes making last year’s tax cut permanent and seeks further tax cuts that would exacerbate long-term fiscal problems.