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US budget outlook is "bleak"; Poll shows 51% of Americans believe Obama has paid "too little attention" to economy
By Finfacts Team
Jan 27, 2010 - 3:02:33 AM
The US Congressional Budget Office (CBO) on Tuesday said the US budget outlook is "bleak," in a forecast that reduces the chances for extending tax cuts, which were proposed by President George W. Bush in 2001 and also raises pressure for fiscal belt-tightening. Also on Tuesday, ahead of tonight's State of the Union address, a poll showed that 51% of Americans believe Obama has paid "too little attention" to the economy.
In its annual report, the nonpartisan CBO projected the 2010 US budget deficit at $1.35 trillion, a slight fall from the $1.4 trillion 2009 deficit that set a post-World War II record. The current fiscal year end on Sept 30th. At 9.2% of GDP, the 2010 deficit would be slightly smaller than the shortfall of 9.9% of GDP in 2009.
The CBO said economic growth in the next few years will probably be muted in the aftermath of the financial and economic turmoil. Experience in the United States and in other countries suggests that recovery from recessions triggered by financial crises and large declines in asset prices tends to be protracted. Also, the CBO says although aggressive action on the part of the Federal Reserve and the fiscal stimulus package enacted in early 2009 helped moderate the severity of the recession and shorten its duration, the support coming from those sources is expected to wane. Furthermore, spending by households is likely to be constrained by slow growth of income, lost wealth, and constraints on their ability to borrow, while investment spending will be slowed by the large number of vacant homes and offices.
In the CBO’s forecast, real GDP increases by 2.1% between the fourth quarter of 2009 and the fourth quarter of 2010 and by 2.4 percent in 2011. Given CBO’s estimate of growth in potential output, those GDP growth rates will narrow the difference between actual output and potential output (the output gap) only slightly. Growth of real GDP will accelerate after 2011, spurred by stronger business investment and residential construction. For 2012 through 2014, CBO projects that real GDP will increase by an average of 4.4% per year, which would close the output gap completely by the end of 2014. GDP is then forecast to grow at an annual average of 2.4% in 2015-2010.
Under current law, the federal fiscal outlook beyond this year is daunting: Projected deficits average about $600 billion per year over the 2011–2020 period. As a share of GDP, deficits drop markedly in the next few years but remain high—at 6.5% of GDP in 2011 and 4.1% in 2012, the first full fiscal year after temporary tax provisions originally enacted in 2001, 2003, and 2009 are scheduled to expire. Thereafter, deficits are projected to range between 2.6% and 3.2% of GDP through 2020.
CBO director Douglas Elmendorf comments on his blog on a separate study of the budget implications for defense spending: "In CBO’s estimation, carrying out the Department of Defense's (DoD’s) 2009 plans for 2010 and beyond—excluding overseas contingency operations (the wars in Iraq and Afghanistan and some much smaller military actions elsewhere)—would require defense resources averaging at least $573 billion annually (in 2010 dollars) from 2011 to 2028. That amount, CBO’s base projection, is about 7 percent more than the $534 billion in total obligational authority the Administration requested in its regular 2010 budget, again excluding overseas contingency operations. The projection also exceeds the peak of about $500 billion (in 2010 dollars) during the height of the Reagan Administration’s military buildup in the mid-1980s. During that period, for example, DoD was pursuing a Navy fleet of 600 battle force ships, more than twice the size of the current fleet of 287."
Poll
According to the latest Wall Street Journal/NBC poll, 51% of Americans believe Obama has paid "too little attention" to the economy. Forty-four percent think he has paid "too much attention" to his proposed overhaul of health care. A majority continues to think that Obama's health-care plan is a bad idea.
The number of people who approve of the job Obama is doing on the economy rose to 47%, up five points from the December survey, while only 27% registered voters said their decision on whom to support in the November congressional elections would be "a vote to send a signal of opposition" to the president.
The projected deficit for 2010 is $1.3 trillion, with Douglas Elmendorf, Congressional Budget Office Director, Peter Kenny, Knight Equities; and CNBC's Steve Liesman, Rick Santelli & Bob Pisani.:
