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Deficit to Decline by $155 Billion in 2013, New CBO Outlook Says

The agency also provided an alternative fiscal scenario, which estimates the effects of Congress changing some provisions of current law. If Congress eliminated the sequester, prevented cuts in Medicare reimbursements to doctors from taking place and permanently continued other expiring tax provisions that are set to end over the next several years, the deficit would rise to $887 billion in fiscal 2013 and by more than $2 trillion over baseline estimates over the next 10 years.

Despite a more positive scenario with deficits shrinking in the coming years, CBO said deficits would rise later in the decade because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance and growing interest payments on the federal debt.

The agency’s forecast sees economic growth speeding up after this year, cutting into the unemployment rate but also helping to spur inflation and higher interest rates. Under the forecast, unemployment would still exceed 7.5 percent through next year, however.

The agency said debt held by the public will reach 76 percent of GDP by the end of the current fiscal year, the largest percentage since 1950.

The agency’s new outlook suggested that the White House and Congress essentially had split the difference in the high-drama talks over whether to extend some or all of the 2001 and 2003 tax cuts. CBO had estimated last year that if all the tax cuts were allowed to expire, the deficit would shrink to $641 billion in fiscal 2013. But under an earlier alternative fiscal scenario, in which all of the tax cuts were extended, the fiscal 2013 deficit was projected at $1 trillion.

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