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Wednesday, March 24, 2010

Revised CBO Analysis of 2011 Budget Projects Trillion Dollar Average Deficit Each of Next Ten Years

The Congressional Budget Office has revised its scoring of the 2011 budget submitted by President Obama. This version is very similar to the one released earlier this month, with some minor adjustments.

This projection should serve as a warning that the United States faces real economic trouble. Based on their numbers the United States will be running an annual deficit of approximately  $975 Billion Dollars/Year. This doesn't even include Obamacare which according to a new Republican projection will add another $64 Billion/year to the deficit.

To put that into perspective, during the heavy spending Bush years the highest deficit was $459 billion dollars. Once Barack Obama became President, and was able to get his hands on the second half of the 2009 budget, deficits started exceeding the trillion dollar level. Obama's budget above makes the trillion dollar figure seem common place.

CBO’s analysis indicates that if the President’s proposals were enacted:
  • The federal government would record deficits of $1.5 trillion in 2010 and $1.3 trillion in 2011. Those deficits would amount to 10.3 percent and 8.9 percent of gross domestic product (GDP), respectively. (The deficit in 2009 totaled 9.9 percent of GDP.) Compared with CBO’s current-law baseline projections, deficits under the President’s proposals would be about 2 percentage points of GDP higher in fiscal years 2011 and 2012, 1.3 percentage points greater in 2013, and above baseline levels by growing amounts thereafter. By 2020, the deficit would reach 5.6 percent of GDP, compared with 3.0 percent under CBO’s baseline projections.
  • Under the President’s budget, debt held by the public would grow from $7.5 trillion (53 percent of GDP) at the end of 2009 to $20.3 trillion (90 percent of GDP) at the end of 2020, about $5 trillion more than under the assumptions underlying the baseline. Net interest would more than quadruple from 1.4 percent of GDP in 2010 to 4.1 percent in 2020 in nominal dollars (without an adjustment for inflation).
  • Revenues under the President’s proposals would be $1.4 trillion (or 4 percent) below CBO’s baseline projections from 2011 to 2020, largely because of the President’s proposals to index the thresholds for the alternative minimum tax for inflation starting at their 2009 levels and to extend many of the tax reductions enacted in 2001 and 2003 that are scheduled to expire at the end of 2010. Other proposals in the President’s budget—including those associated with significant changes in the nation’s health insurance system—would, on net, increase revenues.
  • Mandatory outlays under the President’s proposals would be above CBO’s baseline projections by $1.9 trillion (or 8 percent) over the 2011–2020 period, about one-third of which would stem from net additional spending related to proposed changes to the health insurance system and health care programs. Discretionary spending under the President’s budget would be about $0.3 trillion (or 2 percent) lower than the cumulative amount between 2011 and 2020 in CBO’s baseline, reflecting reduced funding for the wars in Iraq and Afghanistan.
  • The President’s budgetary proposals would have effects on the economy, which would in turn influence the budget through changes in such factors as taxable income (which affects the amount of revenues collected), employment (which determines outlays for programs like unemployment compensation), and interest rates (which affect the government’s borrowing costs). Estimates of economic effects depend on many specific assumptions, and there are several approaches to estimating those effects, so CBO used a number of different models to project the impact on the economy of enacting the President’s proposals. There is, however, a high degree of uncertainty about the economic effects of government policies, so the ranges of possible budget effects are quite wide.
In sum, CBO’s analysis of the interactions between the budget and the economy indicates the following:
  • For 2011 to 2015, CBO estimates that the President’s proposals would raise real (inflation-adjusted) output relative to that under the assumptions in CBO’s baseline by between 0.9 percent and 1.2 percent, on average. Those estimates incorporate both supply-side effects (influences on the economy’s potential output) and demand-side effects (temporary movements of actual output relative to potential output).
  • For 2016 to 2020, CBO estimates that the President’s proposals would lower real output relative to CBO’s baseline assumptions by between 0.4 percent and 1.4 percent, on average. Those estimates incorporate only supply-side effects because the magnitude of demand-side effects depends on the state of the economy, which is difficult to predict over longer horizons. In addition, the Federal Reserve might offset the effect of policies that are foreseen well in advance in order to maintain economic stability.
  • CBO estimates that the economic feedback from the President’s proposals would reduce their cumulative cost over the period from 2011 through 2015—estimated to be about $1.4 trillion excluding any aggregate economic effects—by between 2 percent and 14 percent. From 2016 to 2020, the effects of the proposals on the economy would increase their cumulative cost (estimated to be about $2.3 trillion, excluding any aggregate economic effects) by as much as 6 percent or reduce it by as much as 2 percent. 
Unless our government does something drastic to cut the annual deficit, the United States will find itself as a nation in perpetual servitude to the countries holding its debt.

The full CBO report follows:


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