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New CBO Update Shows No Change in Budget Outlook

“[T]he nation’s budget outlook over the coming decade has not changed materially in the five months since [the Congressional Budget Office] released its previous projections,”  according to CBO’s update of the federal budget released today.  The estimated deficit for the fiscal year that will end on September 30 is $1.342 trillion — just 2 percent ($27 billion) smaller than CBO’s March estimate.

Although CBO’s new “baseline” projection shows slightly higher deficits over the 2011-2020 period, this merely reflects the arcane rules that govern the baseline rather than a real change in the outlook.  In July Congress appropriated an additional $46 billion for fiscal year 2010 — primarily for the wars in Iraq and Afghanistan, but also for responding to the Gulf oil spill, relief for the earthquake in Haiti, and other purposes.  This action was widely anticipated; in its budget submission in February, the Administration requested $47 billion in supplemental funding.  Even though the supplemental appropriation for 2010 does not alter the likely level of spending in the future, CBO is required to assume in its baseline that the additional spending will continue each year.

The budget baseline is also unrealistic in other ways.  The baseline rules require CBO to assume that current laws will remain unchanged, even though current laws differ from current policies in many respects.  For example, CBO generally must assume in its baseline that temporary tax cuts will expire on schedule, even if Congress is very likely to extend them.  For this reason, we and many other budget-watchers regularly adjust the CBO baseline to allow for continuation of the 2001 and 2003 tax cuts, deferral of scheduled reductions in Medicare’s physician payment rates, and troop reductions in Iraq and Afghanistan, among other things.

CBO estimates that the recently enacted health reform legislation (the Affordable Care Act) will reduce the deficit by $179 billion over the 2011-2020 period.  In March, CBO estimated that the law will reduce the deficit by $143 billion over the 2010-2019 period.  The new estimate is the same as the old one except that it covers a different ten-year period.  It excludes an estimated $6 billion increase in the deficit for 2010 and adds an estimated $30 billion reduction in the deficit for 2020.