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The CBO lays out the harsh reality

CBO report The nonpartisan Congressional Budget Office released its latest, discouraging projections about the economy and the federal budget Wednesday morning, predicting tepid GDP growth and high unemployment rates for the next two years. No real surprises there; the CBO had said similar things in August. What was new was the projection for the fiscal 2011 deficit: $1.5 trillion.

That's half a trillion dollars more than the CBO projected last August. And at 10% of GDP, it's just about as large as the deficit in President Obama's first year in office, when the economy was still contracting. The biggest difference between August's analysis and the current one is the tax breaks Obama negotiated with congressional Republicans late last year, which the CBO projects will boost the deficit by $354 billion.

Largely because of the tax cuts, the CBO estimates that the government will collect $409 billion less in taxes in the coming year than it had projected in August. But it's still expecting that the growing economy will push tax revenue up slightly in 2011 compared to the previous year.

So if revenue is expected to grow, why is the deficit expanding? One factor often cited by Republicans is the $148 billion in economic stimulus spending slated for 2011, the final year of the package adopted in 2009. Yet because of cuts in other areas, nondefense discretionary spending (including the stimulus) is expected to increase only $3 billion overall, or 1.9% -- barely faster than inflation and hardly enough to cause the burgeoning deficit.

The real culprits on the spending side are rapid increases in spending on entitlement programs, particularly Medicare, and on servicing the growing federal debt. The former is projected to grow 10%, the latter 14%. Together they are expected to add $142 billion more to the deficit than they did in 2010; nondefense discretionary spending is expected to add only $3 billion.

The CBO's data support two other conclusions. First, returning to 2008 spending levels for "non-security" programs, as House Republicans have advocated, would be a dramatic cut in percentage terms -- possibly 20% -- but it would narrow the budget gap by less than 7%. That's because those programs make up less than one-fifth of the dollars spent by Washington. Social Security, the Pentagon and healthcare benefits for the elderly and the poor all consume larger chunks of the budget.

Second, the economic growth predicted by the CBO, although unimpressive, would still help to shrink the deficit dramatically from 2012 through 2014 if current laws remained in place. But that's an unrealistic assumption, as the CBO points out, because it's based on lawmakers allowing deep cuts in Medicare reimbursements to take effect and the Bush-era tax cuts to expire. Keeping the Medicare reimbursements at their current levels would almost double the deficits over the coming decade, the CBO estimated.

That's another way of saying that healthcare costs are the single biggest problem, and controlling Medicare costs will be a key part of the solution. Obama talked a fair amount about the deficit and debt problems in his State of the Union address Tuesday, but he made only a passing reference to Medicare. Reps. Paul Ryan (R-Wis.) and Michele Bachmann (R-Minn.) who made the budget the centerpiece of their responses to Obama, didn't even mention it.

RELATED:

Mixed reaction to Obama's State of the Union address

Doyle McManus: That old familiar SOTU

State of the Union: Austerity and innovation

-- Jon Healey

 

Comments () | Archives (6)

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P J Evans

Social Security does *not* contribute to the deficit; it's funded by employees and employers.
The big social-program contributor is Medicare and its costs, particularly drugs.

The biggest part of the deficit is the military, which takes a full 30 percent of the national budget, and the two wars that Bush started,

James

Let's face it. Obamacare did not address the increasing cost of HealthCare by one cent. All it did was add 30 million more people with the rest of us paying for it. Health Care insurance as a free enterprise product is no longer a viable business. We will have socialize medicine in ten years. The new health care law requires insurance companies to cover pre-existing conditions, but the governments MediCare excludes 20% of the cost on all medicare conditions.
Medicare premiums paid by seniors are projected to double by 2014. Theirs no choice on these costs, by law they're automatically deducted from S.S benefits.

Greg Maragos

It's a pity the CBO did not have the opportunity to listen to the president's State of the Union address, announcing a recovery, then they could have adjusted their projections accordingly.

seriousfun

Cause of the projected '11 deficit? Extension of welfare for the wealthy: low marginal tax rates for the highest bracket.

Why will we be here? TEA/GOP/FOX are all one thing. This thing hates the voters and viewers who support it with their votes and $$$, and convinces them to continue to vote and contribute and buy and watch against their self interest.

Unveiled racist claptrap like "Obamacare" can be used without criticism or correction in polite company.

This thing exists because every elected official in our Executive and Legislative branches, and now Judicial, are bought and paid for by wealthy and powerful interest who make sure that the scared and ignorant among us are bombarded daily by lies. These lies convince enough people to vote for the ones who would deny them life, liberty, and the pursuit of happiness. We let wealthy and powerful interest write our laws and support our legislators, a transparent system of fascist corporate control of government and bribery.

Nothing will change until we change how our elections are financed. Nothing will change until we bar billionaires' interests from total control of our government.

Tom

Simple solution to the 111th Congress creating this year's (which is really 2010's debting) deficit. Defund or repeal every piece of debt creating legislation created by Democrats during the year. It's not rocket science.

Jon Healey

@Tom -- The biggest reduction in the deficit from your proposal would be to increase taxes by about $354 billion. You'd also save $35 billion by ending extended unemployment benefits, and cut payments to doctors who treat Medicare patients by $19 billion.

I suspect that you were pinning your hopes on repealing ObamaCare, but that law isn't contributing to the 2011 deficit. According to the CBO's estimates from November 2009 , the new law was expected to reduce the deficit by $14 billion in 2011. That may not be the final number -- I'm not sure how the reconciliation bill affected the total.

You might also argue that every appropriation bill enacted in 2010 increased the deficit because, cumulatively, federal spending exceeded its revenues. But as the CBO notes in the report that's the subject of this post, discretionary spending (that is, spending subject to appropriations) increased only $26 billion, while entitlements, other mandatory spending and interest payments went up by more than $220 billion.

Some of that mandatory spending is cyclical -- unemployment benefits, food stamps, aid to low-income veterans, Medicaid. But the big, honking problem in mandatory spending is health-care costs, particularly Medicare. And the thing that critics of ObamaCare complain about in re: Medicare is the cuts to Medicare Advantage, an HMO-style mechanism that costs more than $1 for every $1 in subsidies delivered.


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