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News Link • Government Debt & Financing

The CBO Smokes Crack: The Wild Assumptions That Doom Americans

The CBO is projecting a $1.5 trillion deficit this fiscal year (which is $414 billion - or 38%- more than the CBO predicted only last August!), and a cumulative deficit of $12 trillion over the next decade. Think that sounds bad? Just wait till you hear the assumptions they make. 1) They expect total revenues to rise 43% in the next 2 years alone and 129.6% over the coming decade (from $2.162 trillion in 2010 to $4.963 trillion in 2021). Also, revenue collection as a percentage of GDP is projected to go up from the current 14.9% of GDP to an average of 19.9% of GDP. Please note: this is Federal revenue, and does not yet include tax increases at state or municipal level. 2) Not only do they expect spectacular federal tax revenue increases through real GDP growth rates peaking at 3.4%, and overall price increases consistently being below 2.3%, they are telling us that this spectacular growth in a benign environment is going to be achieved while they project the following to occur: Sharp reductions in Medicare's payment rates for physicians (as scheduled) by the end of 2011. If this doesn't materialize, projected deficits will be 6% of GDP rather than the projected 3.6%. No tax cuts or unemployment benefits will be extended beyond their designated time frame. Meaning payroll tax goes back up, while the Alternative Minimum Tax break, lower tax rate provisions, deductions and credits all expire. This should increase revenues to 20.8% of GDP by 2021, higher than the 40 year average of 18%. Discretionary spending will rise at the rate of inflation (or rather, of price increases, which they project to be low) instead if the MUCH faster rate of increase seen over the last 12 years.

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