Economics: Budget Office Says Savings Could Be Short-Lived

The Congressional Budget Office, in its annual summer snapshot of the nation's fiscal health, projected annual deficits from fiscal year 2012, which begins Oct. 1, through 2021 totaling $3.5 trillion. That is just over half of the $6.7 trillion shortfall it forecast in March.

About two-thirds of the difference reflected projected savings from the bipartisan deficit deal; the rest was due to technical and economic revisions. The lower deficits would leave the nation's accumulated public debt at $14.5 trillion in 2021, or 61% of the gross domestic product — a level that many economists consider the maximum level of debt that is sustainable in a growing economy.

But such projections understate the budgetary challenges facing the federal government in the coming years, Douglas Elmendorf, director of the budget office, wrote on its Web site.

Annual deficits would be $5 trillion higher for the decade, or a total of $8.5 trillion, assuming the White House and Congress continue several policies as in years past — keeping the lower income-tax rates of 2001 and 2003, which already were extended by two years last December; adjusting the alternative minimum tax annually so it does not hit middle-class taxpayers, and blocking a mandated cut in Medicare payments to doctors. The result would be deficits averaging 4.3% of gross domestic product instead of 1.8%, the budget office said; economists generally say annual deficits should not exceed 3% of gross domestic product.

For more, see Budget Office Says Savings Could Be Short-Lived by Jackie Calmes, August 24, 2011 at NYTimes.com.