Fiscal Drag

By Isaac Cohen*

You wonder where are those who said the fiscal imbalance was pushing the United States economy to become like the Greek economy. Contrary to those cries of alarm, as a consequence of both tax increases and spending reduction, the red ink in the federal government’s accounts has decreased by almost half.

True, some concern about the fiscal deficit was justified. Since 2008, at the start of the Great Recession, the federal government was spending about $1 trillion a year in excess of its revenue. However, this last fiscal year, federal government revenue increased almost 13 percent, to $2.8 trillion, while federal government spending was the same $3.5 trillion as the previous fiscal year. Federal outlays decreased, as a proportion of the overall economy, from 22 to 20.8 percent and federal revenues increased from15.2 to 16.7 percent. Therefore, the fiscal deficit as a proportion of the U.S. economy decreased from 6.8 to 4.1 percent.

But there was no room for complacency, because the fiscal performance was in effect a drag for economic growth. This was evident in the revised US economic growth figures for the last quarter of 2013, released last week by the Commerce Department. Drastic budget cuts and the federal government shutdown in October caused a decrease of 1 percent in the rate of US economic growth.

. *International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC Washington Office.

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