The Congressional Budget Office has released new data for the 2010 budget, and the need for more spending freezes and spending controls is becoming more and more evident by the day (as if you didn’t know that). The projections are less dire than they were in August, but the notions of finding any comfort beyond that are not present. The CBO projects that if current laws and policies remained unchanged for fiscal 2010, the federal budget would show a deficit of $1.35 trillion or 9.2% of GDP. The CBO also expects an average of a little over 10% unemployment for the first half of 2010. Here is the kicker though that will dash any hopes for all those who have opted out of the workforce. The CBO noted that unemployment will probably not dip below 9% until 2012. Also noted was that under the current law the CBO expects that individual income tax receipts are projected to surge by 33% in 2011 and by 14% in 2012.
This deficit of $1.3 trillion for fiscal year 2010 would be slightly smaller than the 2009 deficit but, would still be the second largest since World War II as a share of the economy as a whole. The CBO also said that the budget picture remains daunting beyond this year, with deficits averaging about $600 billion annually from 2011 through 2020.
More data verbatim from the CBO summary is as follows:
Those estimates are not intended to be a prediction of actual budget outcomes; rather, they indicate what CBO estimates would occur if current laws and policies remained in place. Toward that end, CBO’s projections presume no changes in current tax laws or spending programs. Any new legislation that reduced revenues (such as indexing the alternative minimum tax for inflation) or boosted spending (such as providing supplemental funding for military operations in Afghanistan) would increase projected deficits. For example, if all tax provisions that are scheduled to expire in the coming decade were extended and the AMT were indexed for inflation, deficits over the 2011–2020 period would be more than $7 trillion higher. (See the above chart for details on the budgetary impact of some alternative policy actions and see the sidebar for more information on CBO’s baseline.)
Accumulating deficits are pushing federal debt to significantly higher levels. CBO projects that total debt will reach $8.8 trillion by the end of 2010. At 60 percent of GDP, that would be the highest level since 1952. Under current laws and policies, CBO’s projections show that level climbing to 67 percent by 2020. As a result, interest payments on the debt are poised to skyrocket; the government’s spending on net interest will triple between 2010 and 2020, increasing from $207 billion to $723 billion.
Economic growth will probably remain muted for the next few years. The deep recession that began in 2007 appears to have ended in the middle of 2009. The economy grew during the third quarter, and early signs suggest that the labor market strengthened slightly late in 2009. CBO expects that the economy will continue to grow, although at a slower pace than in past recoveries. Hiring rates remain very low, and CBO projects that the unemployment rate will average more than 10 percent during the first half of 2010, before beginning a gradual decline. That pattern is typical of recent recessions, where hiring continues to fall for 6 to 12 months after the economy begins to grow.
Beyond the 10-year projection period, growth of spending for Medicare, Medicaid, and Social Security will speed up from its already rapid rate. To keep federal deficits and debt from reaching levels that would substantially harm the economy, lawmakers would have to significantly increase revenues, decrease projected spending, or enact some combination of the two.
Doesn’t this recovery just feel stellar? The only good news here is that this is not quite as awful as what the CBO made in projections back in August. If you love things now, wait until you have far higher tax outlays on top of all the continued uncertainty.
JON C. OGG
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