–Public Debt Seen Reaching 68.9% of GDP in 2012

WASHINGTON (MNI) – The following is an excerpt from the Mid-Session
Review on the subject of receipts, outlays and deficits, part of the
update of the federal budget proposals sent to Congress by the Obama
administration earlier this year, published Friday:

MID-SESSION UPDATE

The Mid-Session Review updates estimates of Federal receipts,
outlays, and the deficit to reflect legislation enacted through July 2,
2010, including action on the Presidents Budget proposals, and policy,
economic, and technical changes that have occurred since the Budget was
released.

Receipts

Receipts for 2010 are now projected to be $33 billion lower than
projected in February for a total of $2.132 trillion, or 14.5 percent of
GDP. For 2011, receipts are now projected to be $141 billion lower than
projected in February for a total of $2.426 trillion, or 15.8 percent of
GDP. Two-thirds of the reduction in receipts for 2011 result from
technical reestimates, which reflect actual tax collections so far in
2010, tax model revisions, and updated taxable wage base data from
employer tax returns. The next most significant factor in the downward
reestimate of 2011 receipts is the reestimate of Administration policy
proposals contained in the MSR. This results largely from the assumption
of later enactment of a number of tax relief measures such as
accelerated depreciation for new business investmentthan assumed in the
Budget, which shifts revenue loss from 2010 to 2011.

Just as receipts for the current and budget years are now projected
to be somewhat lower than projected in the Budget, receipts for 2012
through 2017 are also projected to be lower. This downward reestimate is
generally shrinking over time and ranges from a reduction of $112
billion in 2012 to $11 billion in 2017. For 2018 through 2020, receipts
are projected to be slightly higher than projected in the Budget.
Overall, total receipts are projected to be $391 billion lower for the
2011 to 2015 budget horizon and $402 billion lower for the 2011 to 2020
budget horizon.

Outlays

Outlays for 2010 are now projected to be $118 billion lower than
projected in February for a total of $3.603 trillion, or 24.6 percent of
GDP. The reduction is due in large part to lower outlay estimates for
unemployment and deposit insurance, and non-defense discretionary
programs. Outlays for 2011 are now projected to be $3.842 trillion,
essentially unchanged from the Budget projection, or 25.1 percent of
GDP.

Starting in 2012 and continuing through the budget horizon, outlays
are projected to be slightly lower than projected in February, with the
reductions through 2015 resulting primarily from reductions in interest
payments and the reductions after 2015 resulting primarily from lower
entitlement program spending, including Medicare spending. The size of
the downward reestimate in outlays fluctuates over the outyears, with
the reduction ranging from $22 billion to $87 billion.

Deficits

Because of the lower outlays now projected for 2010, the deficit
for 2010 is expected to be $1.471 trillion, $84 billion lower than
projected in February. The 2010 deficit is projected to be 10.0 percent
of GDP, which is 0.6 percentage points lower than projected in February
and about the same as the 2009 level.

For 2011, the deficit is projected to decline from the 2010 level
to $1.416 trillion, or 9.2 percent of GDP, $150 billion higher than
projected in February. This reestimate is primarily because of the
reduction in projected receipts. For 2012, the deficit is also projected
to be slightly higher than projected in February, equal to 5.6 percent
of GDP, again because of the reduction in projected receipts.

Beginning in 2013, the deficit projections are not significantly
different from the February projections, with the deficits ranging from
3.4 to 4.3 percent of GDP for the remaining years. The deficit
projections show that the budget is still on track to meet the
Presidents goal of cutting the deficit, as a percent of GDP, in half by
the end of his first term. The deficit the President inherited on
January 20, 2009, was equal to 9.2 percent of GDP and the deficit for
2013 is projected to be equal to 4.3 percent of GDP. In addition, the
budget is on track to fulfill the United States commitment at the G-20
Toronto Summit in June, which was to cut the current deficit (10.0
percent of GDP for 2010) in half by 2013. These MSR deficit projections
do not take into account the additional deficit reduction tasked to the
Fiscal Commission.

Debt held by the public, which can be viewed as the sum of all
prior deficits, is projected to be $9.2 trillion at the end of 2010, or
62.7 percent of GDP. Some Government debt that is held by the public was
issued to acquire financial assets as part of TARP. Debt held by the
public net of these and other financial assets is projected to be $8.1
trillion, or 55.1 percent of GDP, at the end of 2010.

For 2011, debt held by the public is projected to rise to $10.6
trillion, or 68.9 percent of GDP, and to continue increasing throughout
the ten-year budget horizon to a projected 77.4 percent of GDP in 2020.
Similarly, debt net of financial assets is projected to increase to 61.9
percent of GDP in 2011 and to increase gradually each year thereafter to
69.2 percent of GDP in 2020. As noted above for deficit projections,
these debt projections do not take into account the additional deficit
reduction tasked to the Fiscal Commission.

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

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