Today's CBO August Update Showed Slightly Worse Deficits
This morning, the Congressional Budget Office released its August Update estimating the FY11 deficit would rise $71 billion to $1.066 trillion as compared to its March estimate. The increase comprised $92 billion of legislated deficit increases, $45 billion of deficit reduction from better than expected economic performance, and $23 billion of increased deficit from worse technical estimating assumptions. The FY10 deficit estimate improved $27 billion. See Appendix Table A-1 for the details.
As always don't believe the deficit decline shown beyond FY11 because it does not include the likely extension of the Bush tax cuts, indexing of the Alternative Minimum Tax, or the extension of other tax breaks. Add those back in, and the deficit will remain stuck around $1.1 trillion through FY15 (between 6% and 7% of GDP) and higher beyond. See Table 1-7.
Other wildcards in the forecast include estimates of the Patient Protection and Affordable Care Act (See Box 1-1) and the wars in Iraq and Afghanistan (See Box 1-3).
The truly scary part of the forecast is that even with record low interest rates, the public debt and the interest expense on that rise rapidly. We ended FY08 with a public debt of 40% of GDP, and we'll end FY10 next month at 61.6% and FY12 at about 68.5%, where CBO has it leveling off for the rest of the decade -- let's hope.
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