WASHINGTON (MNI) – The following are excerpts from the
Congressional Budget Office updated budget projections, published
Tuesday:

In conjunction with its analysis of the President’s budget, which
will be issued in a few days, the Congressional Budget Office (CBO) has
updated the baseline budget projections that it released in January. CBO
has not revised its assessment of the economic outlook since January;
however, the new baseline projections incorporate the budgetary effects
of recently enacted legislation and updated technical assumptions based
on new information (such as data about spending and revenues so far this
year and program details released in conjunction with the President’s
budget).

This report summarizes CBO’s updated baseline budget projections
and describes how they differ from the projections that the agency
published two months earlier.

CBO’s current estimate of the budget deficit for fiscal year 2012
— $1.2 trillion — is $93 billion larger than the deficit projected in
January. Conversely, CBO’s baseline projection of the cumulative deficit
for the 10-year period from 2013 to 2022 is $186 billion smaller than
the amount projected in January — a decrease equal to about 0.1 percent
of gross domestic product (GDP) over that period. The fundamental story
about the federal budget has not changed: Although the deficit is
starting to shrink, it remains very large by historical standards.

How much and how quickly it declines will depend in part on how
well the economy performs over the next few years. Probably more
critical, though, will be the fiscal policy choices made by lawmakers as
they face the substantial changes to tax and spending policies that are
slated to take effect within the next year under current law.

CBO’s Baseline Budget Projections

As specified in law, and to provide a benchmark against which
potential legislation can be measured, CBO constructs its baseline
estimates of federal revenues and spending under the assumption that
current laws generally remain unchanged. On that basis, the federal
budget is projected to show a deficit of nearly $1.2 trillion in 2012
(see Table 1). Relative to the nation’s gross domestic product, that
shortfall will equal 7.6 percent — about 1 percentage point less than
the deficit recorded last year but still higher than any deficit between
1946 and 2008.

In CBO’s baseline, deficits are projected to drop markedly in the
next few years and to average 1.4 percent of GDP over the 2013-2022
period. With deficits small relative to the size of the economy, the
amount of federal debt held by the public is projected to drop from
nearly 76 percent of GDP in 2013 to 61 percent in 2022–still higher
than in any year between 1953 and 2009.

Much of that projected decline occurs because, under current law,
revenues will rise considerably as a share of GDP — from 15.8 percent
in 2012 to 19.8 percent in 2014 and 21.2 percent in 2022. In particular,
in CBO’s baseline, revenues shoot up by more than 30 percent over the
next two years, mostly because of the recent or scheduled expirations of
tax provisions — such as those that reduce income and payroll tax rates
and limit the reach of the alternative minimum tax (AMT)– and the
imposition of new taxes, fees, and penalties that are scheduled to go
into effect.

Revenues are projected to keep rising relative to GDP after 2014
under current law, largely because increases in taxpayers’ real
(inflation-adjusted) income will push more income into higher tax
brackets and because more taxpayers will become subject to the AMT.

…

Federal spending is projected to decline modestly as a percentage
of GDP in the next several years under the assumptions of CBO’s
baseline, as the economy expands and statutory caps constrain
discretionary appropriations. Spending turns upward relative to GDP in
later years because of increasing expenses generated by the aging of the
population and rising costs for health care.

Outlays are projected to average 22.0 percent of GDP over the
2013-2022 period — lower than the 23.4 percent that CBO estimates for
2012 but still elevated by historical standards. Spending resulting from
the American Recovery and Reinvestment Act of 2009 (Public Law 111-5)
will continue to ebb over the next few years, as will outlays for
unemployment compensation and other benefits that tend to increase
during economic downturns. In addition, caps on discretionary spending
and other procedures established in the Budget Control Act of 2011 (P.L.
112-25) will hold down the growth of federal outlays.

In the baseline, discretionary spending is projected to decline to
5.6 percent of GDP by 2022 — the lowest level in the past 50 years. The
factors constraining outlays will be partially offset by increases in
spending for mandatory programs, particularly Social Security, Medicare,
Medicaid, and other federal health care programs. In all, mandatory
spending is projected to climb from 13.4 percent of GDP in 2013 to 14.3
percent in 2022. Although the deficits projected under current law are
much smaller than the shortfalls seen in the past few years, the federal
budget remains out of balance throughout the next decade in CBO’s
baseline. The resulting accumulation of federal debt, combined with
rising interest rates, drives up the projected cost of financing that
debt; in CBO’s baseline, net interest costs jump from 1.4 percent of GDP
this year to 2.5 percent in 2022.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$]