Research report A U.S. Fiscal Crisis?
Rudolph G. Penner
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Recent tax cuts and the relaxation of spending caps on much of discretionary spending have added massively to the federal debt. Neither political party is showing much interest in controlling deficits and unless there are large changes in fiscal policies we are firmly on a road to a fiscal crisis. Fiscal crises are extremely painful and all ideologies should try very hard to avoid one. Liberals will be forced to give up some of their favorite spending programs while conservatives will be faced with large tax increases. This paper examines the effects of fiscal crises on Ireland and Greece and asks what their experiences might mean for the United States. Their austerity programs were especially hard on civil servants and pensions and both were forced into significant tax increases. Their problems had only minor impacts on the world economy. A U.S. crisis would additionally create financial turmoil throughout international financial markets.

Primary topic Federal Budget and Economy
Research Area Economic effects of tax policy Federal budget Federal debt Federal spending