Thread: 'Daunting' outlook will mean bulging deficits - CBO

'Daunting' outlook will mean bulging deficits - CBO

cnnmoney
By Jeanne Sahadi, senior writer
Tuesday January 26, 2010, 1:35 pm EST

The U.S. government's fiscal outlook is "daunting," with deficits averaging at least $600 billion a year over the next decade, the Congressional Budget Office said Tuesday.

The debt accrued over the next 10 years will top $6 trillion -- $1.35 trillion of which will hit this year.

And that's the optimistic projection: The agency's forecast assumes that lawmakers don't adopt the very expensive policies everyone expects them to adopt.

But more than $2 trillion gets added to that tab if, for example, Congress extends the 2001 and 2003 tax cuts and permanently protects the middle class from the Alternative Minimum Tax.

It's not just expensive policies that make the fiscal outlook daunting. The interest on the debt the United States has already accrued will soar between 2010 and 2020 as a share of gross domestic product in part because of an expected rise in rates. The CBO expects the rate on the 10-year Treasury note, currently 3.6%, will rise to an average of 5.5%.

In addition, economic growth in the wake of the financial crisis is likely to be "muted" over the decade as a whole. The CBO estimates average annual GDP growth of more than 4% in the near term on an inflation-adjusted basis, but only 2.4% between 2015 and 2020.

That's partly because the effects of the fiscal and monetary stimulus put in place starting in 2008 are expected to wane. Consumers are going to be a little more constrained.

And the unemployment rate, currently 10%, will begin to fall in earnest after 2011 but won't reach 5% before 2016. That's in the neighborhood of what economists define as "full employment."

"Spending by households is likely to be constrained by slow growth of income, lost wealth and limits on their ability to borrow, and investment spending will be slowed by the large number of vacant homes and offices," the agency wrote in its report.

The cost of the various financial and economic rescues have also affected the trajectory of the federal budget. The CBO now estimates that the stimulus bill passed last February will increase the deficit by $862 billion between 2009 and 2019. That's a bit more than the original $787 billion estimate, due in part to higher-than-expected spending on unemployment benefits and food stamps.

On the bright side, the CBO expects the net cost of the Troubled Asset Relief Program (TARP) -- for which $700 billion was allocated -- to only be $99 billion. That's well below the $241 billion the agency estimated over the summer.

The drop is the result of, among other things, improved market conditions and the repurchase of preferred stock sold to the government by many of the major banks that took TARP loans.

http://tinyurl.com/yzh8c8y

You can count on Congress to push Immigration Reform this year. With high unemployment and government entitlement programs going broke, they will push to make illegals pay taxes. The truth is that most will be given legal access to the entitlement programs, altho they have never paid into them.
Has anyone else ever considered how many more unemployed would be collecting unemployment bebefits if CIR had passed in 2007?