WASHINGTON (MNI) – The following are highlights from the
Congressional Budget Office Friday of the second part of its analysis of
President Obama’s 2013 budget, this time focusing on its economic
effects:

Each year, after the President releases his annual budget request,
the Congressional Budget Office (CBO) analyzes the proposals and, using
its own estimating procedures and assumptions, projects what the federal
budget would look like over the next 10 years if those proposals were
adopted. CBO usually provides those results in two parts: The first part
presents an examination of the proposals’ budgetary impact without
considering their effects on the U.S. economy. The second part, which
takes more time to prepare, shows their potential effects on the economy
and, in turn, the impact of those macroeconomic effects on the budget.
CBO has now completed that second analysis, and this report summarizes
the results.

In its analysis of the President’s proposals excluding any
macroeconomic effects, which was issued on March 16, CBO concluded that
the federal budget deficit would equal $1.3 trillion (or 8.1 percent of
gross domestic product, GDP) in fiscal year 2012 and would decline to
about $1.0 trillion (or 6.1 percent of GDP) in 2013. The deficit would
decline further relative to GDP in subsequent years, reaching 2.5
percent by 2017, but then increase again, reaching 3.0 percent of GDP in
2022.

The projected deficits under the President’s proposals would exceed
those in CBO’s baseline — a benchmark showing the outcome if current
laws generally remained unchanged — by 0.5 percent of GDP ($82 billion)
in 2012, by 2.2 percent of GDP ($365 billion) in 2013, and by between
1.4 percent and 1.9 percent of GDP in each year from 2014 through 2022.
In all, between 2013 and 2022, deficits would total $6.4 trillion (or
3.2 percent of total GDP projected for that period), $3.5 trillion more
than the cumulative deficit in CBO’s baseline.

Estimates of the macroeconomic effects of those proposals depend on
many specific assumptions and judgments, so CBO used several different
approaches to estimating those effects, generating a range of possible
outcomes. The estimates cover the periods 2013 to 2017 and 2018 to 2022.

CBO estimates that the President’s budgetary proposals would boost
overall output initially but reduce it in later years. For the 2013-2017
period, under most of the estimates CBO produced using alternative
models and assumptions, the President’s proposals would increase real
(inflation-adjusted) output (relative to that under current law)
primarily because taxes would be lower than those under current law,
and, therefore, people’s disposable income and their demand for goods
and services would be greater.

Over time, however, the proposals would reduce real output
(relative to that under current law) because the deficits would exceed
those projected under current law, and the effects of increasing
government debt would more than offset the favorable effects of lower
marginal tax rates on labor income. When the net impact of those two
types of effects would shift from an increase in real output to a
decrease would depend on various factors, including the impact of
increased aggregate demand on output and the effect of deficits on
investment.

By CBO’s estimate, under the President’s proposals, the nation’s
real output during the 2013-2017 period would be, on average, between
0.2 percent lower than the amount under current law and 1.4 percent
higher than under current law. For the 2018-2022 period, CBO estimates
that the President’s proposals would reduce real output, on average, by
between 0.5 percent and 2.2 percent compared with what would occur under
current law.

Those economic effects would in turn influence the budget through
changes in taxable income, in outlays for unemployment insurance and
other programs, and in interest payments on government debt, among other
factors. According to CBO’s estimates, the effects on the budget would
be as follows:

– For the 2013-2017 period, before accounting for the macroeconomic
effects, CBO estimates that the President’s proposals would add a total
of $1.5 trillion to deficits, resulting in a cumulative deficit of $3.2
trillion over that period. The economic feedback from the President’s
proposals would yield projected deficits totaling between $3.0 trillion
and $3.2 trillion over that period.

– For the 2018-2022 period, before accounting for the macroeconomic
effects, CBO estimates that the President’s proposals would add a total
of $2.0 trillion to deficits, resulting in a cumulative deficit of $3.2
trillion over that period. The economic feedback from the President’s
proposals would yield projected deficits totaling between $3.3 trillion
and $3.6 trillion over that period.

** MNI Washington Bureau: 202-371-2121 **

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