Yesterday, the Congressional Budget Office released their estimates for the federal deficit for 2010 and it's deceivingly ugly.
"The Congressional Budget Office (CBO) estimates that the federal budget deficit for 2010 will exceed $1.3 trillion-$71 billion below last year's total and $27 billion lower than the amount that CBO projected in March 2010, when it issued its previous estimate. Relative to the size of the economy, this year's deficit is expected to be the second largest shortfall in the past 65 years: At 9.1 percent of gross domestic product (GDP), it is exceeded only by last year's deficit of 9.9 percent of GDP."
For those unfamiliar with the CBO, they are charged with scoring all things legislative to provide Congress with tabs on how the Fisc is impacted by their actions. However, there are certain boundaries that are placed on the CBO that can skew their analysis and generate more optimistic projected outcomes. As an example in the current report, the CBO makes this statement, "...the federal budget deficit would decline substantially over the next two years-to 4.2 percent of GDP by 2012.....Projected deficits total $6.2 trillion for the 10 years starting in 2011, raising federal debt held by the public to more than 69 percent of GDP by 2020, almost double the 36 percent of GDP observed at the end of 2007."
If you don't read the full report and a politician states the above, one would think that the federal deficit is not in dire shape or in need of radically fixing. Fortunately, the CBO is very good at stating their assumptions and these assumptions massively skew the result. Here are the assumptions to get the deficit to decline to 4.2% and 69% debt-to-GDP in 2020:
1. Current laws affecting the budget will remain unchanged.