Thursday, September 03, 2009
Government Projects Grim Fiscal Outlook
The latest projections for both federal deficits and the national debt can be described as nothing but grim.
On August 25, the White House Office of Management and Budget and the nonpartisan Congressional Budget Office each predicted exploding federal deficits and mounting debt over the next decade.
Both project the budget deficit for this year swelling to a record of nearly $1.6 trillion.
The White House revised its projected budget deficit to be $2 Trillion higher over the next decade than its previous May estimate. It now foresees a cumulative $9 trillion deficit from 2010-2019.
However, congressional budget analysts put the 10-year figure at a lower $7.14 trillion.
Either way, the news paints a bleak picture of America’s deteriorating debt position.
“If you include the administration’s fiscal plans, this implies a deficit increase way in excess of $10 trillion over the next decade – the numbers are deeply alarming,” said Bill Gale, a senior economist at the Brookings Institution.
The difference in the two government estimates is due primarily to the CBO's assumption that all of the Bush tax cuts will expire as scheduled by 2011, as dictated by current law. Yet, the White House intends to maintain the tax cuts for families earning less than $250,000 a year.
Regardless, 10-year projections can be highly inaccurate; any number of foreign and domestic challenges could make actual deficit figures very different from the estimates.
Beyond the 10-year forecast, the nation will face the additional challenges of rising health care costs and an aging population, the CBO said. "The budget remains on an unsustainable path" over the long-term and will require some combination of lower spending and higher tax revenues, it said.
Both estimates envision the national debt nearly doubling over the next decade. As of August, the total national debt stood at a staggering $11.7 trillion.
Congressional Budget Office director Douglas Elmendorf said if Congress doesn't reduce deficits, interest rates will likely rise, hurting the economy. But, he said, if Congress acts too soon, the economic recovery – whenever it arrives – could be thwarted.
"We face perils in acting and perils in not acting," Elmendorf told reporters.
The White House said the economy would shrink by 2.8 percent this year, more than twice its previous 1.2 percent estimate. It also expects unemployment to pass 10 percent and stay higher than 8 percent until the end of 2011.
White House budget director Peter Orszag said the government will have to spend more on unemployment insurance and food stamps due to the extended recession.
According to Orszag, continuing stresses will increase the cost of the economic stimulus package – most of which will be spent in fiscal year 2010 – by tens of billions of dollars above the original $787 billion.