Tags: CBO | budget | deficit | GDP

CBO Makes Annual Budget Presentation

By    |   Tuesday, 27 Jan 2015 07:56 AM

Part of the annual ritual of the reconvening of Congress, during the season of the State of the Union address, is the presentation of the annual forecast of the Congressional Budget Office (CBO). Thus, on Jan. 26 CBO Director Douglas Elmendorf held a press conference to release this material looking out 10 years through 2025.

This will probably be the last presentation Elmendorf will make, not because anyone questions his dedication to bipartisanship, but because Republicans now in charge of Congress will want to replace him with a Republican who is equally dedicated to the principle of bipartisanship that was established by Alice Rivlin, the Democrat who served as the first director of the CBO and was esteemed even by Republicans for her fairness and professionalism. The reputation of the CBO has survived far longer than this cynic ever thought possible, even as the so-called "budget process" has failed to contain the growth of federal spending or, in recent years, even to produce a budget.

In his opening remarks Elmendorf predicted crisply that after having fallen for several years, the federal deficit is projected to hold steady as a percentage of GDP through 2018, then grow again and further increase this percentage beyond a level that "is already historically high." The prediction is based on the standard assumption that spending laws will generally remain the same, as well as an economic forecast of solid expansion in 2015 and for the next few years, eliminating the so-called "output gap" by the end of 2017, with the unemployment rate falling "a little further" and more people participating in the labor force. Beyond that point, real GDP is projected to grow notably slower than it did in the 1980s and 1990s.

The estimated deficit for fiscal year 2015 is $468 billion, slightly less than for fiscal year 2014. At 2.6 percent of GDP, this would be the smallest since 2007, but close to the average of 2.7 percent for the past 50 years. However, after 2018 the deficit is projected to rise to $1.1 trillion, or 4 percent of GDP, and cumulative deficits from 2016 through the end of the period would total $7.6 trillion. The public debt will be 74 percent of GDP at the end of this fiscal year, more than twice what it was at the end of 2007 and higher than any year since 1950, and it would rise to nearly 79 percent of GDP by fiscal year 2025. The CBO predicts that in 2039, the debt would exceed 100 percent of GDP and would continue on an upward trajectory thereafter, an unsustainable trend that would restrict economic growth.

The factors Elmendorf cited for these projections are retirement of baby boomers, expansion of subsidies for health insurance, increasing healthcare costs per beneficiary and rising interest rates on federal debt. (This is a provocative forecast given the administration's claim that somehow the expansion of the federal healthcare program is going to "bend the cost curve" in a favorable direction.)

Coincidentally, the Brookings Institution hosted a panel discussion the same day of an issue dear to the hearts of budget wonks everywhere, namely the merits of so-called "dynamic scoring," the extent to which the feedback effects of a given policy should be taken into account in estimating its cost.

At the Brookings event, presided over by David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy, one might say that too many experts gave their views on the merits of dynamic scoring in the debate over fiscal policy. The most recognizable names are former CBO Director Douglas Holtz-Eakin and Jared Bernstein, former aide to Vice President Biden and a favorite participant of conservative think tanks.

In his opening remarks, Wessel noted that the House Rules now require the application of dynamic scoring to tax and spending estimates, so the event would focus on the assumptions and challenges entailed in implementing this rule. This writer would warn readers and viewers that the result was an event both more relevant and more stultifyingly wonkish than they might otherwise expect.

(Archived video of Director Elmendorf's press conference can be found here. The Brookings panel discussion can be found here.)

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Robert-Feinberg
Part of the annual ritual of the reconvening of Congress, during the season of the State of the Union address, is the presentation of the annual forecast of the Congressional Budget Office (CBO).
CBO, budget, deficit, GDP
699
2015-56-27
Tuesday, 27 Jan 2015 07:56 AM
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