OMB and CBO Estimate Trillion Dollar Deficits Through FY11

OMB's Mid-Session Review added $1.9 tr. to the FY09-FY19 deficit estimate and assumed a weaker recovery. At 9:30 AM this morning, the Office of Management and Budget released its estimates, shaving the FY09 deficit by $262 b. to $1.580 tr. and raising the FY10 deficit by $243 b. to $1.502 tr.  Most of the change was from new assumptions about TARP, removing the $250 b. contingency for this year and adding $62 b. for next year.  A weaker recovery than predicted last May accounted for most of the rest of the changes.  OMB now estimates the unemployment rate will reach 10% in the fourth quarter of this year.  The FY11 deficit estimate was increased by $194 b. to $1.123 tr., mostly from weaker receipts and higher unemployment compensation than estimated in May.  OMB's estimates assume President Obama's policy proposals will be enacted, including making most tax cuts permanent and fixing the Alternative Minimum Tax.  OMB does not include supplemental spending likely to be enacted in the future for the Iraq and Afghanistan wars and other emergency spending.

CBO's Summer Update added $2.7 tr. to the FY10-FY19 deficit estimate. At 10 AM this morning, the Congressional Budget Office released its estimates, shaving the FY09 deficit by $80 b. to $1.587 tr. and raising the FY10 deficit by $242 b. to $1.381 tr.  Again TARP was the biggest change, -$203 b. in FY09 and +$60 b. in FY10.  Over the next 10 years, CBO estimated $802 b. of higher defense spending for the wars in Iraq and Afghanistan.  Other spending increases, $622 b. for debt service, $88 b. for TARP, and $811 b. for a wide range of programs, pushed the CBO FY10-FY19 deficit total to $7.132 and the FY09-FY19 total to $8.724 tr.  By law, CBO does not assume the extension of the Bush tax cuts beyond 2010 ($2.296 tr. plus debt service of $491 b. FY10-FY19) or the extension of other expiring tax cuts ($1.794 tr. plus debt service of $419 b.) or indexing the Alternative Minimum Tax ($448 b. plus debt service of $98 b.).  Those total $5.546 tr. including debt service, raising the $8.724 tr. FY09-FY19 total deficit to $14.270 tr.  CBO treats Fannie Mae and Freddie Mac as on-budget, adding $191 b. this year and about $100 each year through FY19 as compared to OMB, which assumes they are off-budget except for current cash outlays.  See CBO's explanation in Box 1-1 on p.8.  CBO estimated some changes from the stimulus bill in Box 1-2 on p.11.

NIPA revisions were not included in either set of forecasts, although CBO stated it expected only small revisions would result if it had included them. See Box 2-1 on p.30 of CBO's update.  OMB showed how the NIPA revisions would affect its economic assumptions on p.12.