The 2020 Long-Term Budget Outlook

By contrast, if policymakers waited longer to reduce federal spending or increase taxes, more debt would accumulate, which would slow the growth of output and income. Delaying implementation would thus mean that reaching any chosen target for debt would require larger changes. Nonetheless, if policymakers waited longer to enact deficit-reduction policies, the economy probably would be affected less over the short term than it would be if changes were made immediately.

Even if lawmakers waited to implement policy changes to reduce deficits in the long term, deciding about those changes sooner would offer two main advantages. First, people would have more time to prepare by adjusting the number of hours they work, the age at which they plan to retire, and the amount they choose to save. Second, policy changes that reduced the debt over the long term would hold down longer-term interest rates and could lessen uncertainty—thus enhancing businesses’ and consumers’ confidence. Those factors would boost output and employment in the near term.

Effects on Different Generations. Faster or slower implementation of policies to reduce budget deficits would tend to impose different burdens on different generations. Reducing deficits sooner would probably impose a greater burden on older workers and retirees but a lesser burden on younger workers and future generations. Reducing deficits later would impose a smaller burden on older workers and retirees but a greater burden on younger workers and future generations. However, the additional burden on people in younger generations resulting from delaying policy changes would be relatively small compared with their lifetime earnings potential because, on average, people in future generations are expected to have much higher income than those in current generations.

CBO studied the effects on the average real disposable income per person in various generations from waiting to resolve the long-term fiscal imbalance. In particular, the agency compared economic outcomes under two types of policies. One would stabilize the debt-to-GDP ratio starting in a particular year, and the other would wait 10 years to do so. For policies such as across-the-board benefit cuts or tax rate increases for all adults, that analysis suggests that the average income of people in generations born after the earlier implementation date would be lower under the policy with a 10-year delay.10 In contrast, people born more than 25 years before the earlier implementation date would have a higher average income if action was delayed—mainly because they would partly or entirely avoid the policy changes needed to stabilize the debt. Generations born between those two groups could either gain or lose from delayed action, depending on the specific details of the policy changes.11

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