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Deficit Picture Grimmer than New CBO Projections Suggest

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On January 26, 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. Omitted costs that are likely or virtually certain to be incurred exceed $­­3.3 trillion. Adjusting the CBO baseline for such costs raises the deficit projection to $5.2 trillion over the next ten years. Other analysts, such as economists at the Brookings Institution and Goldman Sachs, have also projected that deficits will exceed $5 trillion over the decade.

This analysis explains why — and to what extent — the budget picture is grimmer than the CBO projections may suggest. It also examines new 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 cuts have added the most to the deficits.