deficit

The Congressional Budget Office estimated subpar economic growth (2.3% real GDP CY11 4th Q over 4th Q and 2.7% CY12) and an FY11 deficit of 8.5% of GDP and FY12 of 6.2%.  The deficit falls sharply to 3.2% of GDP in FY13 and to 1.6% of GDP in FY14 because of the budget savings of the Budget Control Act of 2011, S.365, and the assumed expiration of the payroll tax cut and extended unemployment insurance at the end of this year and of the Bush tax cuts at the end of next year.  In my opinion, most, if not all, of the Bush tax cuts will be extended, adding 0.2% to 0.3% of GDP to the deficits.  With the likelihood that the Joint Selection Committee on Deficit Reduction will deadlock and that most of its roughly 0.7% of GDP savings will be achieved by the January, 2013 sequester, the FY13 and FY14 deficits are more likely to be around 4% of GDP.  See pp.26-7 for estimates of alternative policy outcomes.

The Committee for A Responsible Federal Budget has just posted a very handy side-by-side comparison of 32 deficit reduction plans.  You can use this tool to compare any three at a time.  This is Budget Wonk Heaven.

Of course, our problem is not a lack of plans; it's finding one plan that can pass both houses of Congress and can get President Obama's signature by August 2, which Treasury just reaffirmed today.

At Cheri Reidy's retirement reception at the Senate Budget Committee Wednesday -- She has put in 29 years of top-notch service to our country, starting at the desk next to mine -- I heard staff and members from both parties talking down: President Obama; leaders of the other party; leaders of their own party; and the futile 3:30 p.m. sequester briefing that interfered with final arrangements for Cheri's party.  She was given a very warm and heartfelt sendoff in any event, but the gloom over the budget talks hung heavy.

Rivlin-Domenici calls for $1.1 trillion in defense cuts over the next nine years, through a five-year nominal freeze and growth with the economy.  For a summary  visit The Will and The Wallet at the Stimson Center.  For a blog entry go to DOD Buzz.  More to come.   the debate is heating up!

Quite a discussion today on the Diane Rehm show involving the future of the defense budget.  Kori Schake of the Hoover Institution thinks the budget will not be cut because of emerging threats (China) and because the administration is not projecting a cut.  James Kitfield of National Journal thinks it will be cut, but shouldn't be, because it is a dangerous world, with emerging threats and stabilization needs.  I think it will be cut because the departure from Iraq and Afghanistan, which will undermine political support for high defense budgets, and deficit reduction, which will require everything to be on the table, will combine to lead both parties to agree on cuts.  Listen to the exchange on WAMU.