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CBO: $1.08 trillion deficit, 8.9 percent jobless rate in 2012

Discussion in 'BBS Hangout: Debate & Discussion' started by basso, Jan 31, 2012.

  1. basso

    basso Contributing Member
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    Feel the Hope.

    CBO projects $1.08 trillion deficit, 8.9 percent jobless rate in 2012
    By Erik Wasson - 01/31/12 12:43 PM ET
    The Congressional Budget Office on Tuesday predicted the deficit will rise to $1.08 trillion in 2012.

    The office also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013.

    These are much dimmer forecasts than in CBO's last report in August, when the office projected a $973 billion deficit. The report reflects weaker corporate tax revenue and the extension for two months of the payroll tax holiday.


    A rising deficit and unemployment rate would hamper President Obama's reelection effort, which in recent weeks has seemed to be on stronger footing.
    If the CBO estimate is correct, it would mean that the United States recorded a deficit of more than $1 trillion for every year of Obama’s first term.

    CBO Director Doug Elmendorf told reporters that Congress will have to make important choices this year regarding the supercommittee trigger and tax policy that will have huge effects on the deficit.

    While unable to recommend choices, Elmendorf said that addressing the deficit sooner rather than later is easier.

    The deficit was $1.4 trillion in 2009, $1.3 trillion in 2010 and $1.3 trillion in 2011. The largest deficit recorded before that was $458 billion in 2008.

    CBO had forecast an 8.5 percent unemployment rate for the end of 2012 in its August report. It now expects the jobless rate to be higher and to still be at 7 percent in 2015.

    The higher unemployment numbers are due to lower economic growth than previously estimated. Gross domestic product for 2011 is now estimated to have grown 1.6 percent in 2011, down from the 2.3 percent forecast in August. CBO a year ago had predicted 3.1 percent growth for 2011.

    The outlook for 2012 has also worsened. GDP is forecast to grow only 2 percent this year, compared to a previous estimate of 2.7 percent.

    Budget cuts from the August debt deal and projected tax increases set to kick in when the Bush tax rates expire at the end of the year, will “restrain economic growth this year and significantly restrain growth in 2013,” according to CBO. But it says the fiscal prudence will help growth in the out years.

    It is unclear whether the Bush tax cuts will be allowed to expire. Republicans want all of the tax rates to be extended, and the White House wants Bush tax rates for families with annual income below $250,000 to be extended.

    Gross federal debt would rise from $14.8 trillion at the end of 2011 to $21.7 trillion under CBO's projections.

    The CBO uses a “current policy” baseline that assumes the Bush-era tax rates will not be extended after 2013, however.

    The deficit will be much higher if Congress takes several actions that many expect.

    If the Bush tax rates are extended, for example, the deficit would rise.

    It would rise if Congress patches the Alternative Minimum Tax, which lawmakers have routinely done to prevent higher taxes from being imposed on middle class taxpayers.

    It would also rise if Congress continues to pass the “doc fix” that prevents a cut to Medicare payments to doctors, something that Congress has done on a near-annual basis.

    Finally, if Congress does not follow through on cuts mandated by the failure of the supercommittee, the deficit will grow. Lawmakers are already talking about canceling scheduled cuts to the Pentagon’s budget.

    In the “alternative fiscal scenario” where these things happen the gross federal debt rises to $29.4 trillion by 2022.

    Elmendorf noted that allowing the lower tax rates to be extended or for the triggered cuts to be dodged would boost short term growth by as much as 2.9 percent in 2013 and lower unemployment to as low as 7.4 percent.

    But he said such a choice would come with a steep price, with $400 billion added to the deficit in 2013 alone.

    “There is no plausible scenario where the alternative fiscal scenario is sustainable,” he said.

    Elmendorf noted that extending all the Bush era tax rates and patching the AMT adds $5.4 trillion to the deficit. He said that just ending tax reductions for the wealthy could contribute about $1 trillion to deficit reduction.

    Despite political rhetoric that focuses on discretionary spending, Elmendorf made clear that the bigger driver of the deficit increase are entitlement programs.

    “Clearly the deficit will not be brought under control without changes in either revenues or Social Security and federal healthcare programs,” he said. “The gap that has opened between what we are used to getting from the government and the revenue that we are used paying into the government has widened and will only get wider in the coming decade.”

    Obama will release his 2013 budget request on Feb. 13. He is expected to included in it recommendations for reducing the deficit by $4 trillion over a decade and to call for the end of Bush-era tax rates for the wealthy.

    By the end of March, House Republicans plan to vote on their alternative budget, authored by House Budget Committee Chairman Paul Ryan (R-Wis.). Ryan hopes to release a budget similar to his 2012 budget, which included changing Medicare into a private insurance system for future retirees.

    "With four straight years of trillion-dollar deficits, no credible plan to lift the crushing burden of debt, and a Senate majority that has failed to pass a budget for over 1,000 days, the president and his party’s leaders have fallen short in their duty to tackle our generation’s most pressing fiscal and economic challenges," Ryan said in reaction to the CBO report.
     
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  2. Classic

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    Interesting blog I read on Forbes today about healthcare spending relating somewhat to deficit. I think the answer here is to keep printing money.

     
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  3. SamFisher

    SamFisher Contributing Member

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  4. Phillyrocket

    Phillyrocket Member

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    It's pretty much common knowledge now that the US spends way more per person on healthcare than everyone else with way worse results.

    We use far too much healthcare services with little to no accountability for if it actually works.

    I submit to this article to continue your perusal on this issue:

    Enjoy:

    http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande
     
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  5. Northside Storm

    Northside Storm Contributing Member

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    Ironically, news of this will probably push Treasury yields down even further.

    Also, the CBO gave me a nice chart to auto-reply when the Schiff hyperinflation kids come roaring again.

    [​IMG]
     
  6. Northside Storm

    Northside Storm Contributing Member

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    oh yeah, this one's nice too...

    [​IMG]
     
  7. Phillyrocket

    Phillyrocket Member

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    Thank you Medicare Part D:)

    http://www.nytimes.com/2011/08/16/us/16drug.html

    http://www.forbes.com/2009/11/19/re...-care-opinions-columnists-bruce-bartlett.html

     
  8. Dairy Ashford

    Dairy Ashford Member

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    Your bolding here is a bit self-serving. On the latter paragraph it's flat out misleading as to both the quote's attribution and the existence of a House of Representatives.
     
  9. Classic

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  10. Sweet Lou 4 2

    Sweet Lou 4 2 Contributing Member
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    Reduce deficits and tank economy or stimulate the economy and run up deficits.

    Only way out is to tax the rich back to sane levels.



    By the way. Fb is right. We should all agree to stop feeding Basso
     
  11. basso

    basso Contributing Member
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    False choice. One could raise revenues, reduce deficits, and grow the economy at the same time.
     
  12. pirc1

    pirc1 Contributing Member

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    How about just get rid of medicare like the Republicans always wanted? That should solve the problem right?:p
     
  13. bmb4516

    bmb4516 Member

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    Tearing into the actual CBO data, it's not the "Bush Tax cuts" that cause the problem in the alternative fiscal scenario. The CBO uses them (oh and BTW, about 66% of the additional revenue from ending the Bush Tax Cuts come from the bottom tax brackets) as a measure to normalize revenues as a percentage of GDP at 18%. That is our historical average. In other words, the CBO assumes that we will be bringing no more and no less than we always have (as a percentage of GDP). The published scenario (which includes ending the Bush Tax cuts) does not take revenue normalization into account. In fact, the long term CBO scoring shows that revenues will eventually 35% of GDP, a completely implausible scenario (and the CBO says so).

    On the spending side of the ledger in the alternative scenario, the CBO makes two assumptions:

    1) That the spending levels established under the Budget Control Act will not be adhered to
    2) That the SGR (Doc fix) will never actually go into effect.

    Both of these scenarios are likely. In fact, if you don't pass a Doc fix every year, then you kill Medicare. So that one will absolutely happen. The BCA provisions will likely not go into effect because Republicans don't want to hurt defense and the Democrats don't want to hurt Medicare.

    All that said, the real spending problem in America is four items: Medicare Medicaid, Social Security, and Debt Interest. Just those four items will cost around $5 trillion dollars a year by 2020. That's $1.4 trillion dollars more than we spent in total this year. There is no amount of taxation that we can do to bring that cost into balance.

    To solve the problem we need to do a few things.

    1) True tax reform - Three tax brackets of 10%, 15%, and 20%. All deductions other than charity and mortgage interest are immediately eliminated. Mortgage interest is phased out over 10 years.

    2) Find a way freeze MANDATORY spending - Discretionary is not the problem. Yes it needs some cuts, but this year 68% of spending will come from Medicare, Medicaid, Social Security, and Debt Interest. One way help this is to eliminate the SS portion of the payroll tax and make SS a direct appropriation. As far as the other two (which are the much bigger problem) you have to find a way to drive costs down. Tort reform and cross-state insurance sales would help here, but they are only a small part of the problem. Medicare as a whole must be phased out over the next fifty years. It's not going to be there one way or the other, so we need to find a way to end it in a way that benefits both the government coffers and the individual.

    3) We need to explode the economy. It's time to come to grips with the facts that our regulatory environment cannot compete with the up and comers of the world. As much as we love our environment, we much ease the burdens that the EPA and DoE place on our energy production, agriculture, and manufacturing industries. We must eliminate corporate taxes (since they just pass them on to consumers anyway) and tie capital gains into income.
     
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  14. Major

    Major Member

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    I agree with the underlying problems you listed, but I'm not sure these solutions really fix things.

    Do we know if this raises or drops total tax revenues? Who ends up paying more, and who ends up paying less? How does this help address the budget deficit?

    SS can very easily be fixed by changing the retirement age and fixing the inflation measure - I think this particular problem is a bit overrated in terms of the actual health of SS. The bigger problem is that we've essentially accounted badly and spent all the current trust fund, so as it depletes over the coming years with the baby boomer retirement, we're going to have a big drain on yearly finances - but the program itself would totally pay for itself with the proper changes.

    Medicare is a much bigger issue - your solution of phasing it out helps fix the government finances, but it doesn't address the real issue at all. Medicare is not a problem because it's government run - it's a problem because health care costs are out of control. Eliminating Medicare does not but put that same impossible burden on seniors, which essentially means that if seniors are not millionaires, we're just giving them a death sentence. The real fight needs to be to get true health care costs under control - if we do that, Medicare is a reasonably healthy and not-gargantuan program.

    Other countries manage to provide excellent health care without our costs, so it might be time to start looking at what they do. And, in theory, Medicare can be used to help put downward pressure on these costs since they control so much volume. Ability to negotiate drug prices would be one example here.

    The regulatory environment is different than it was a decade ago, but it's not really much worse. The problem right now with the economy is on the demand side, not the supply side. What we really need to do is spur demand, and that involves creating jobs. The best way government can create jobs is to reward job creation. Provide additional tax breaks for companies that hire locally. Provide fewer tax breaks for companies that move operations overseas. We already provide tax breaks for things we consider "important" like alternative energy, oil exploration, etc. If jobs are important, then we should target that. Controlling health care costs in #2 would also make labor in the US cheaper. Etc. I don't think messing with taxes or regulations is going to solve anything - its a very indirect way to deal with the underlying problem, and targets only specific industries when the problem is much broader.
     
  15. basso

    basso Contributing Member
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    fantastic post.
     
  16. SamFisher

    SamFisher Contributing Member

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    Of the many silly tropes you've got going, this is one of the dumber ones - It's not because Chinese gov't officials are willing to take bribes while their kids drink mercury tea that the manufacturing is there, though it certainly helps; it's that they have zillions of people willing to cram themselves into dorms for tiny wages, which has in turn created industrial clusters that basically make it inefficient for the supply chain to be located anywhere else. There was actually a whole big series of reports on this in the NYT last month.

    You can gut as many health and safety and enviro regulations as you want, but it doesn't mean an ipad factory is going to open up in Flint Michigan; Instead it means that corporations are going to be even more able to shift the costs of their activities like pollution onto consumers who have no choice in the matter, and everybody's worse off.
     
  17. Northside Storm

    Northside Storm Contributing Member

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    It has been said that the virtue of the Laffer curve is that
    you can explain it to a congressman in half an hour
    and he can talk about it for six months.
    —Hal Varian, Intermediate Microeconomics

     
  18. Northside Storm

    Northside Storm Contributing Member

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    you're right, the oil reserves and bodies strewn around could be exported for Soylent Green producers.

    Do conservatives really think the true constraint on the economy are...EPA regulations? :confused: And not the fact that households and firms are going through the biggest confidence drop in decades, thanks to deleveraging in the face of constrained credit that was caused, I must repeat, entirely by the actions of a few wealthy and jaded elites?
     
  19. Sweet Lou 4 2

    Sweet Lou 4 2 Contributing Member
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    Yeah right? If we go back to dumping everything into Lake Erie until it catches fire and cancer rates shoot up to Chinese level - conservatives will still be harping it is not enough.

    Fundamental fact is you can't compete with people working for a $1/day by deregulating. You have to compete with them by having jobs that they can't do. That's high-tech.

    Manufacturing is dead in this country. We need to keep our edge in the service sector. That's education and stopping the brain drain.
     
  20. basso

    basso Contributing Member
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    raising revenues would not reduce the deficit (assuming spending cuts ass well?)
     

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