CBO releases update on budget and economy outlook
The Congressional Budget Office released its long-term budget and economic report this morning. The conclusion is nothing we didn’t already know: “The United States is facing profound budgetary and economic challenges,” the report says.
The specifics outlined in the report are nonetheless daunting:
The federal government is expected to run a $1.3 trillion budget deficit for fiscal year 2011 – the third-largest in the last 65 years (only the last two years’ deficits were higher)
The federal government will add more than $3.5 trillion to the national debt over the next 10 years
Economic growth will stay “well below the economy’s potential” for “several years.” (The CBO predicts 2.3 percent growth this year and 2.7 percent the next.)
Unemployment will remain above eight percent until 2014.
Some lawmakers may try to use the news that the deficit is expected to decline as a percentage of economic output (from 6.2 percent of GDP in 2012 to an average of 1.2 percent of GDP between 2014 and 2021) to show that Washington now understands it has a spending problem and is being more fiscally responsible.
This statement would only partially true. While the CBO’s 10-year cumulative deficit number has fallen to $3.5 trillion from the $6.7 trillion predicted in March (due in large part to the recently-enacted Budget Control Act), the CBO’s numbers also make several policy assumptions that may not come true. For example, the CBO numbers predict a cut in Medicare payments to doctors (something Congress has prevented fro happening for years) and an expiration of both the President’s payroll tax cut and Alternative Minimum Tax relief. The Administration and individual members of Congress are pushing for the extension of one or both of these policies. Furthermore, the CBO numbers assume the 2001 and 2003 tax cuts will expire.
In other words, lawmakers shouldn’t be uncorking those champagne bottles yet. The nation is still deep in debt, and going deeper. There are still plenty of places to cut and reform spending programs; Congress should see today’s report only as a reconfirmation that it needs to keep looking for where to cut.