Tuesday, January 31, 2012

"The 10 Most Important Charts in CBO's New Economic Report"

Always remember that Congress only allows the CBO to model the numbers that Congress gives the CBO i.e. the Budget Office is not allowed to do dynamic modeling or pass judgement on whether the inputs are realistic.
With those caveats, here's the Atlantic:
The 2012 deficit will break $1 trillion for the fourth consecutive year. The economy's growth will slow in 2013 as spending cuts take hold. Unemployment will stay above 7 percent through 2015. The housing recovery is locked behind a thick wall of vacancies. Yeah, the Congressional Budget Office's new economic report is kind of a bummer. Here's what it tells us about the economy in 10 big charts.

1. What's Behind Our Future Deficits?

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The CBO's "baseline projection" sounds like a sober prediction. It's not. It's a fantasy. For example, the baseline projects that the Bush tax cuts are will expire next year (not!). For a dose of reality, the CBO also calculates spending and taxing under an "alternative scenario." This is the scenario to pay attention to. It anticipates that Congress will delay both tax increases and spending cuts currently scheduled in the law -- a very reasonable assumption.

What if Congress sat on its hands and let current law rule? The deficit would fall by 60 percent to $500 billion in 2013, and it would stabilize by the middle of the decade. But nobody wants that to happen. Conservatives don't want to raise taxes, and liberals don't want to soak up stimulus by $500 billion in one year. So we'll keep having high deficits through the decade.

2. What's Behind Our Future Deficits? Part II

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What if we let current tax law rule? Our deficits would fall by more than half in the next decade. The dark blue portion of the bars in the chart above represent our deficits if we let the Bush tax cuts expire and enacted the Budget Control Act of 2011 (the debt ceiling deal) along with some other measures. The CBO has seen this movie before, which is why it calculates an alternative scenario where Congress falls prey to status quo bias, year after year....MORE