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Deficit Picture Grimmer Than CBO's March Projections Suggest

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Abstract:

In March, the Congressional Budget Office issued new budget projections that show the federal government running a large cumulative deficit over the next ten years. As CBO acknowledges, however, its baseline projection is unrealistically optimistic, since it does not include the costs of continuing various policies, such as the recent tax cuts. Last month, the Center on Budget and Policy Priorities (Washington, D.C.) joined with the Committee for Economic Development, the Committee for a Responsible Federal Budget, and the Concord Coalition in reporting that omitted costs that are likely or virtually certain to be incurred equal about $2.6 trillion over the next ten years. Adjusting the CBO baseline for such costs raises the deficit projection to $4.6 trillion over the next ten years.

This analysis provides more of the detail behind these joint estimates (and, in so doing, serves as an update of the “Mid-Term and Long-Term Deficit Projections” jointly released by the Center on Budget and Policy Priorities, the Committee for Economic Development, and the Concord Coalition in September 2003). It also examines CBO data that shed light on the causes of the sharp fiscal deterioration of recent years. These data indicate that, among actions policymakers have taken, tax cut explain fully half of the shift from surpluses to deficits.