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The Federal Budget Outlook and the Election

September 6, 2012

With one month remaining in the fiscal year, the federal government appears to be on track to record a deficit of about $1.130 trillion, down from $1.296 trillion in FY11 and $1.294 trillion in FY10. 

-Scott Brown, chief economist, Raymond James

With one month remaining in the fiscal year, the federal government appears to be on track to record a deficit of about $1.130 trillion, down from $1.296 trillion in FY11 and $1.294 trillion in FY10. Such large deficits can't continue indefinitely and this year's election should, in part, be about how, and how fast, the deficit will be trimmed in the years ahead. However, it's important to look at where the deficit came from.

Everyone "knows" that large deficits are due to runaway government spending right? Let's see. We'll set the Way-Back Machine to September 2008 - Lehman implodes, Freddie and Fannie have been taken into government conservatorship, we have a global financial panic. The nonpartisan Congressional Budget Office releases its Economic and Budget Outlook Update. The CBO's projections, as usual, are based on current law. The deficit was higher than expected in FY09-11, largely related to recession-related spending (the fiscal stimulus, extended unemployment insurance benefits, etc.). Now here's the interesting thing. The 2008 projection of federal outlays for FY12 is very close to being spot on. Moreover, due to last year's budget deal, the CBO currently projects that federal spending for the next two years will belower than was projected in 2008. That's not to say that federal spending isn't "too high" or "ill spent." It's merely pointing out that spending is currently not any higher than one would have anticipated back in 2008.

 

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