CBO Reports Job Increases and GDP Decreases

Weeks after Congress was able to pass a last-minute proposal to raise the debt ceiling, the Congressional Budget Office projects a $1.3 trillion budget deficit for 2011. This is the third largest budget deficit in 65 years. (Via the Washington Post.)

According to the CBO report, the $1.3 trillion budget deficit projection for 2011 will account for 8.5 percent of gross domestic product. The CBO expects the deficit to "fall to 6.2 percent of GDP next year and 3.2 percent in 2013, and they average 1.2 percent of GDP from 2014 to 2021." Real GDP is projected to increase by 2.3 percent this year and another 2.7 percent in 2012.

The projections also call for unemployment to slowly decrease over the next couple of years. Currently sitting at 9.2 percent, the CBO expects unemployment to decrease by 0.3 percent over the next four quarters. Then, it is expected to reach 8.5 percent in the fourth quarter of 2012 and settle around 8 percent until 2014. The federal fiscal year runs from October 1 to September 30.

All of these projections depend upon certain policies under current laws. In particular, the Acts that are of main concern include the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, and the American Recovery and Reinvestment Act (ARRA). All of these acts expire at the end of 2012. In addition, the recently passed Budget Control Act decreases discretionary spending in an attempt to save the U.S. government from default.

Projections Analysis

These predictions will bring some optimism to supporters of deficit reductions procedures. The problem is the completion of these projections is left to the politicians and Congress to raise revenue by allowing the George W. Bush tax cuts to expire in 2012 or heavily cutting other programs.

"If some of the changes specified in current law did not occur and current policies were continued instead, much larger deficits and much greater debt could result," said the CBO.

The CBO mentions that another concern is the aging population and the rising health care costs that will increase federal spending beyond these ten-year projections. If changes aren't made, federal debt could increase even past the current levels. Just imagine another fiasco attempting to settle an even higher debt ceiling.

"To prevent debt from becoming unsupportable, policymakers will have to substantially restrain the growth of spending, raise revenues significantly above their historical share of GDP, or pursue some combination of those two approaches," the CBO adds.

Lastly, the CBO expects the economy to slowly increase over the next couple of years due to a decrease in federal fiscal policy, as pointed out in the Budget Control Act. The CBO says that increases in GDP will ultimately be "driven by continued strength in business investment, modest increases in consumer spending, and expansions in net exports and residential investment."