![]() This increase would bring forward deficit levels projected for 2034 by the CBO. So the deficit will increase in total by $690 billion.Īdded to the $1 trillion already projected by the CBO for 2023, this means a deficit of 6.4 percent of GDP, even with no other unexpected increases in spending, (on unemployment insurance for example). The federal government’s expected revenues will be reduced by about $480 billion at this more modest rate of personal income tax revenue with no other changes in other projected tax collections. This is the level experienced in 2019, before the pandemic, and in 2014, when unemployment was 6 percent (a level that Larry Summers also anticipates) and asset markets were much less frothy. Second, asset prices are much lower, which means fewer capital gains or even losses, and therefore lower personal income tax revenue to the government. In particular, if we assume, as Harvard economist Larry Summers has foretold, that Treasury security rates will be around 5 percent, my estimate is that the net interest payments by the federal government in 2023 will be $210 billion higher than CBO projected in July.Įven more significant, instead of personal income tax revenues coming in at a projected 9.8 percent of GDP in 2023 - compared to 10.6 percent in 2022 - when capital gain tax payments were at record highs on a nose-bleed stock market at the end of 2021 - a more prudent projection would be 8 percent. First, interest rates are already much higher than originally assumed and will likely rise further. There are two reasons for this massive increase in the 2023 deficit projection. This would occur before we even feel the full force of the inevitable structural deficits arising from an unreformed Social Security program and the many increasingly expensive government health care programs for the elderly and low- and moderate-income households. My rough calculation (detailed below) is that the 2023 deficit will come in at 6.4 percent of GDP, or nearly 70 percent higher than the CBO projection. ![]() ![]() Unfortunately, the current economic outlook belies this rosy scenario and the near future deficit picture is much darker. ![]() President Biden has claimed credit for this reduction and used it to justify the lack of funding for his proposed student loan forgiveness program. ![]()
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