CBO projects $845B budget deficit for 2013
By Erik Wasson - 02/05/13 01:00 PM ET
The Congressional Budget Office on Tuesday projected a federal budget deficit of $845 billion in 2013, the first time it will have fallen below $1 trillion under President Obama.
The reduction in the budget deficit comes after Congress approved higher tax rates on households with annual income above $450,000. But the long-term forecast from the non-partisan CBO shows the fiscal cliff deal that prevented higher tax rates on most households did little to help the nation’s long-term budgetary outlook.
CBO sees the deficit falling to $430 billion by 2015 before slowly rising again. By 2023, CBO projects the nation will be nearing the $1 trillion mark with a $978 billion budget defici as the aging population and rising health costs explode entitlement spending.
CBO also projects weak economic growth for 2013 and a high unemployment rate above 7.5 percent through 2014 in its annual fiscal outlook published on Tuesday. That would mark the sixth straight year with a jobless rate above 7.5 percent, the longest stretch in 70 years.
CBO sees the economy growing at a weak 1.4 percent rate in 2013. It says that growth would be 1.5 percentage points greater if automatic spending cuts known as the sequester were turned off, if a 2 percentage point payroll tax break were reinstated and if tax increases instituted last month on wealthier taxpayers were voided.
The House and Senate point persons on the budget offered typically disparate reactions to the CBO report.
House Budget Committee Chairman Paul Ryan (R-Wis.) said the CBO report shows that the country is still on the path to a debt crisis and needs to get serious about spending cuts now.
“The CBO’s report is yet another warning that we need to get spending under control. The deficit is still unsustainable. By 2023, our national debt will hit $26 trillion. We can’t let that happen," he said. Ryan noted that President Obama is late in producing his budget for 2014.
“House Republicans have offered their solutions. Now the President and Senate Democrats must do the same," he said.
Senate Budget Committee Chairman Patty Murray (D-Wash.) said the CBO economic forecast shows more needs to be done to stimulate growth.
“Today’s CBO outlook confirms that the economic recovery remains fragile and we can’t afford to lose focus on job creation and economic growth," she said. “The outlook also highlights the danger to the economy if sequestration takes effect as scheduled on March 1st. It’s clear that sequestration is an irresponsible way to reduce the deficit, and I hope that Republicans are truly willing to work with us on a balanced and bipartisan replacement that doesn’t place the entire burden on the middle class and most vulnerable families and that calls on the wealthy to pay their fair share.”
Automatic spending cuts known as the sequester are set to begin in March, though Obama on Tuesday urged Congress to prevent most of them.
Economists at CBO do see the economy rebounding strongly in 2014 with 3.4 percent growth. Unemployment would get down to 5.5 percent by 2018, CBO says.
The 2013 growth numbers are rosier than those CBO projected in August when the fiscal cliff loomed and CBO saw the economy contracting by 0.5 percent in 2013.
CBO estimates the government will add $6.96 trillion in deficit spending over the next ten years under current law.
The fiscal cliff deal added $3.9 trillion in deficits over the next ten years, CBO said.
The CBO has projected budget deficits below $1 trillion under Obama before, but only if all of the Bush-era tax rates were allowed to expire. Assuming those tax hikes, for example, the CBO last year projected the deficit would fall to $641 billion. Such a scenario was unlikely, however, given opposition from Obama and Republicans in Congress to raising taxes on the middle class.
The CBO budget baseline, which will form the yardstick used by lawmakers during coming fiscal debates this year, assumes that nearly $1 trillion in automatic spending cuts over nine years is allowed to take place and that a radical cut to doctor payments under Medicare is allowed to occur, among other assumptions.
Assuming Congress simply turns off the sequester cuts and passes a “doc fix” without paying for it, among other actions, would add a total of $9.5 trillion in new deficits over ten years.