Recessions aren’t the only causes of deficits. Conversely, when the economy is strong, deficits tend to shrink (or surpluses grow). This is one reason that deficits typically grow (or surpluses shrink) during recessions. When the economy is weak, people’s incomes decline, so the government collects less in tax revenue and spends more on economic security programs such as unemployment insurance or food assistance. But it is higher than its recent low point in 2015, of 2.4 percent of GDP. That’s down significantly from the 9.8 percent it reached in the depths of the Great Recession and the 15 percent it reached in 2020, at the peak of the COVID-19 shutdown. The Congressional Budget Office (CBO) estimates that the fiscal year 2022 budget deficit will be around $1 trillion (3.9 percent of the economy as measured by gross domestic product, or GDP). If the government collects more revenue than it spends in a given year, the result is a surplus rather than a deficit.
#Budget deficit meaning pro
Toni Atkins, the Democratic president pro tempore of the California Senate, said she is confident the state can pass a budget this year “without ongoing cuts to schools and other core programs or taxing middle class families.For any given year, the federal budget deficit is the amount of money the federal government spends (also known as outlays) minus the amount of money it collects from taxes (also known as revenue). Newsom did pause $1 billion in homelessness spending earlier this month, but that decision wasn’t related to sinking revenues. A change in statewide homelessness funding appears to be unlikely, given Newsom’s commitment to addressing the issue. Palmer said the Newsom administration will begin making budget decisions next month. “That’s a very good example of the type of pause we had in mind,” Petek said. As an example, they pointed to a $500 million program to clean up homeless encampments across the state. Instead, the Legislative Analyst’s Office says lawmakers should delay some of the $75 billion in one-time spending they approved over the past two years. Their outlook predicts deficits not just for this year, but the next three years - although the size of the deficit decreases each year. “The good news is that as we prepare to close a budget shortfall, the state is in its best-ever position to manage a downturn, by having built strong reserves and focusing on one-time commitments,” said Palmer, the Department of Finance spokesman.Ĭalifornia lawmakers could conceivably cover all of the deficit with the money it has in its savings accounts, but the Legislative Analyst’s Office warned them not to do that. Gavin Newsom’s administration wasn’t surprised, either, calling the $25 billion deficit estimate “realistic and reasonable.” We must refocus on fiscal responsibility,” said Fong, who is vice chair of the Assembly Budget Committee.ĭemocratic Gov. “Today’s report is another wake-up call to those warnings. The report did not surprise Republicans, who said they have been warning against California’s massive increase in public spending for years, with Republican Assembly member Vince Fong calling it “unsustainable.” Facebook parent Meta announced last week that it would layoff 11,000 people, or 13% of its workforce.
#Budget deficit meaning series
“The chances that the Federal Reserve can tame inflation without inducing a recession are narrow,” the LAO said in its report.Īlthough employment in California remains strong - the 3.9% unemployment rate for September is tied for the lowest since 1976 - the high-wage tech industry has been roiled by a series of recent job cuts.
That leads to layoffs, meaning people pay less in taxes. Although that would control price increases, it also cuts demand for goods and services. A higher interest rate makes it more expensive to borrow money, which eventually causes people to spend less. The Federal Reserve has tried to rein in inflation by raising a key interest rate. Soaring inflation has made everything more expensive. But this latest deficit prediction is more likely to stick.
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