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Editorial - CBO Doubles US Deficit Forecast

TwentyDollarBillWASHINGTON, D.C. (3/10/13) – The Congressional Budget Office (CBO) is a non-partisan operation of the US Government that helps guide Congress and the President in predicting the impact of budgetary actions on the economy, deficit and debt.  Unfortunately, neither the President nor Congress has any obligation to follow the recommendations of the CBO.

What the CBO is now reporting is confusing and alarming.  It is very difficult for the average citizen to understand much of what the CBO is saying.  And, you have to read very carefully.  

The so called “Sequester” was to cut spending by some $85 Billion dollars.  To hear the President, you would think disaster had hit the nation.  To put it into perspective, only $44 Billion is to be reduced in this fiscal year and represents about 1% of government spending.  Even with the Sequester, government spending is to increase by about 2% this fiscal year.  

Furthermore, the CBO estimates that the federal government spent $205 Billion more than it took in for February ALONE.  That is better than February 2012 when the deficit was $232 Billion.  

Here is the confusing part: Don’t leave me here.  Just skip the technical stuff like the next two sentences.  Economists use the Gross Domestic Product (GDP) to baseline spending.  The CBO uses constant dollars of 2007 GDP baseline.  You can pick up here: This year for every $100 spent across our entire economy $5.30 is borrowed money spent by the feds.  This is a big improvement from three years ago when it was $8.50.  Over the past 6 months the federal government has spent $500 Billion more than it took in (This is Fiscal 2013 for you techno geeks). 

Here is the alarming part:  The CBO has revised the debt projections UPWARD DOUBLED!! This will put the US debt at an alarming $21 Billion dollars by 2022.  Many economists have warned that such a debt level will destroy our economy resulting in a catastrophic collapse of the US and world economies.  Here is the CBO projection:

Changes from CBO’s Previous Projections

The deficits projected in CBO’s current baseline are significantly larger than the ones in CBO’s baseline of August 2012. At that time, CBO projected deficits totaling $2.3 trillion for the 2013–2022 period; in the current baseline, the total deficit for that period has risen by $4.6 trillion. That increase stems chiefly from the enactment of the American Taxpayer Relief Act of 2012 (P.L. 112-240), which made changes to tax and spending laws that will boost deficits by a total of $4.0 trillion (excluding debt-service costs) between 2013 and 2022, according to estimates by CBO and the staff of the Joint Committee on Taxation. CBO’s updated baseline also takes into account other legislative actions since August, as well as a new economic forecast and some technical revisions to its projections.

Revenues

Federal revenues will increase by roughly 25 percent between 2013 and 2015 under current law, CBO projects. That increase is expected to result from a rise in income because of the growing economy, from policy changes that are scheduled to take effect during that period, and from policy changes that have already taken effect but whose full impact on revenues will not be felt until after this year (such as the recent increase in tax rates on income above certain thresholds).

As a result of those factors, revenues are projected to grow from 15.8 percent of GDP in 2012 to 19.1 percent of GDP in 2015—compared with an average of 17.9 percent of GDP over the past 40 years. Under current law, revenues will remain at roughly 19 percent of GDP from 2015 through 2023, CBO estimates.

Conclusion

If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $845 billion, or 5.3 percent of gross domestic product (GDP), its smallest size since 2008. In CBO’s baseline projections, deficits continue to shrink over the next few years, falling to 2.4 percent of GDP by 2015. Deficits are projected to increase later in the coming decade, however, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt. As a result, federal debt held by the public is projected to remain historically high relative to the size of the economy for the next decade. By 2023, if current laws remain in place, debt will equal 77 percent of GDP and be on an upward path, CBO projects.

Economists and historians agree that history will not be kind to this Congress or President Obama if they don’t fix this deficit problem.  Granted, most of the deficit is the result of a sluggish economy not keeping pace with federal spending; or, others would say that it is the federal government spending beyond its means.  


Ron Sanders
SurfKY News
Graphics provided by SurfKY Graphics

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