The Congressional Budget Office (CBO) projects the FY2011 federal budget deficit will be $1.3 trillion, essentially unchanged from FY2010. This latest CBO deficit estimate represents a $100 billion improvement from its March 2011 projection of $1.4 trillion. This improvement notwithstanding, the FY2011 deficit will still represent 8.5 percent of GDP, and according to CBO “will be the third-largest shortfall in the past 65 years (exceeded only by the deficits of the preceding two years).”
The improvement in the FY2011 deficit projection results largely from revenue increases, CBO reported. Outlays will show a slight decline in mandatory outlays from previous the CBO estimate.
The deficit is expected to decline significantly after 2012 as improving revenues reflect economic recovery and relatively flat expenditures in the short-term result from spending reduction efforts. CBO projects cumulative deficits from 2012 to 2021 to be $3.5 trillion, over $3 trillion lower that its March projections. CBO attributes about two-thirds of this improvement to the spending caps and the process (the Joint Select Committee on Deficit Reduction) for additional deficit reduction, which were established in the Budget Control Act of 2011. CBO does not include any assumptions concerning possible revenue recommendations the Committee may propose.
Much of the remaining $1 trillion in long-term deficit improvement estimated by CBO, will come from increasing revenues resulting from expiring tax provisions (e.g., tax cut extensions). However, CBO cautions that these revenue increases (and resulting deficit improvement) may be overstated if these tax cuts are not extended.