The Federal Budget Gets a Failing Score

Last week, the U.S. Congress completed work on the country’s budget for fiscal year 2024. Good thing: the government’s fiscal year is almost halfway over.

After all the hand-wringing (and near-shut downs) over increasing deficits, the outline calls for nearly $6.5 trillion in spending this year. That represents more than 23% of the country’s gross domestic product (GDP). The Congressional Budget Office projects a shortfall of $1.5 trillion (5.6% of GDP) for this fiscal year. Both of these levels are very high by historical standards.

This outcome might give one the impression that legislators have no limits when it comes to budgeting and borrowing. That may be overly harsh, but the way Congress views major programs may be in need of an overhaul.

When initiatives are proposed, they are subject to “scoring,” which estimates their impact on the budget. At a basic level, measures are judged by the direct effect they have on revenue or spending. Under this “static” approach, a tax cut or spending increase would be viewed as increasing annual deficits.

But those who support these proposals contend that they would generate increased levels of economic growth, broadening the tax base and producing additional revenue. In an attempt to capture these effects, “dynamic” scoring can be used. The dynamic part refers to after-effects that might make the analysis more comprehensive, such as the favorable impact of lower tax rates on economic growth. The case for a more interactive approach can be found here.