–Congressional Budget Office Chief: Official Est Understates Deficit
–CBO Chief Elmendorf: ‘Sharp’ Deficit Cuts Now Would ‘Hold Back’ Econ
–CBO’s Elmendorf: Fiscal Restraint Should ‘Take Effect Slowly’

By John Shaw

WASHINGTON (MNI) – U.S. Congressional Budget Office director Doug
Elmendorf Tuesday said an alternative fiscal policy baseline that his
agency has developed shows the U.S. racking up about $11 trillion in
additional cumulative deficits over the next decade, not the $3 trillion
that is in the CBO’s official estimate.

At a briefing, Elmendorf emphasized that under budget law CBO must
make its baseline estimates by assuming current tax and spending laws
are unchanged.

He said this budget convention is becoming “less and less useful,”
and added the CBO report provides a “benchmark, not a forecast.”

The CBO reported Tuesday that it expects the fiscal year 2012
deficit to be $1.079 trillion, down from $1.296 trillion in FY’11.

Assuming current budget and tax laws continue, the CBO sees
deficits of $585 billion in FY’13, $345 billion in FY’14, $269 billion
in FY’15, and $302 billion in FY’16.

Looking further ahead, the CBO sees deficits of $220 billion in
FY’17, $196 billion in FY’18, $258 billion in FY’19, $280 billion in
FY’20, $279 billion in FY’21, and $339 billion in FY’22.

For the FY’13-17 period, the CBO sees cumulative deficits of $1.721
trillion. For the FY’13-22 period, the CBO sees cumulative deficits of
$3.072 trillion.

However, Elmendorf said that an alternative scenario that CBO
developed shows much higher budget deficits, totaling $11 trillion over
a decade.

This scenarios assumes extending the 2001 and 2003 tax cuts, making
adjustments to the alternative minimum tax, projecting discretionary
spending to rise at its historic rate and other spending and revenue
adjustments that reflect choices that policymakers have made in the
past.

Elmendorf said his agency sees the American economy continuing to
grow “slowly” over the next several years, especially if the Bush era
tax cuts are allowed to expire and strong spending constraints are
triggered.

These policies would represent “sharp fiscal contraction” and would
“hold down growth,” Elmendorf said.

While he declined to make specific fiscal policy recommendations,
Elmendorf said a sound budget policy would be for a large deficit
reduction package to be developed and for it to “take effect slowly.”

“Sharp deficit” reduction done immediately, he said, would hamper
the economic recovery.

In the CBO’s report, it sees the U.S. economy growing at 2% in 2012
and only 1.1% in 2013.

Elmendorf said this weak growth projection assumes the expiration
of Bush era tax cuts and other contractionary fiscal policies.

For the 2014 to 2017 period, CBO sees the U.S. economy growing at
4.1% and for the 2018 to 2022 period at 2.5%.

Elmendorf will testify to the House and Senate Budget Committees
later this week.

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

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