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93doc03

93doc03

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Published by Peggy Satterfield

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Published by: Peggy Satterfield on Dec 13, 2012
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CONGRESS
OF THE
UNITED STATESCONGRESSIONAL BUDGET OFFICE
The
Bconomic
and Budget
Outlook:
Fiscal
Years
1994-1998
A
Report
to the
Senate
and
House Committees
on the
Budget
As
Required
by
Public
Law
93-344
 
CBO
Publication
S
V M
M
A R
January 1993
CONGRESSIONALBUDGET
OFFICE
Second
and
D
Streets,
S.U.
Washington,
B.C.
20515
CBOECONOMIC
AND
BUDGET OUTLOOK
The federal deficitisexpectedtoreach $310 billionin1993,
setting
a newrecordfor thefourth
year
in a
row, according
to the
Congressional
Budget
Office's
report
The
Economic
and
Budget Outlook:
Fiscal
Years
1994-1998.
The
pace
of economic
growth will
be
insuf-
ficient
tobring downthedeficit, whichisexpectedtohover
near
$300 billion throughmid-decade
and
then
grow even
bigger
(see
table
on
reverse).
Under
current
policies,
CBO
projects
that
the deficit would reach $357 billion in 1998 and about $650 billion in2003.Because
the
economy
is
still
operating
below
its
potential,
part
of the
deficit
stems
from
economic
weakness. This
cyclical deficit
makes
up
one-fourth
of the
1993 deficit,
but its
significance fades as the expansion continues. Spending for deposit insurance will alsocause modest,
transitory
fluctuations
in the
deficit.
The
year-to-year swings
in
thisspending,
however,
have
little
effect
on the
economy
or on
interestrates.
When both
cy-
clical
and
transitory
factors
are
removed, what
remains
is the
standardized-employment
deficit,
also called the
structural
deficit. This deficit hardly budges
from
$230
billion
through
1995.
It
then
climbs
steadily,
fueled
by
burgeoning outlays
for
Medicare
and
Medicaid,
growingnet
interest
costs,and theexpiration
of
the1990 Budget
Enforcement
Act's
strict
limits
on
discretionary appropriations.Thedeficitisunlikelyto goaway
of
its ownaccord.But thepenaltyfor notreducingit iswidely acknowledged:
by
draining national saving,
the government
crimps
investment,
which
is the
primary engine
that
drives growth
in
productivity
and
living standards.
CBO
concludes
that
erasing
the deficit in
five
or 10 years could cause short-term
disrup-
tion,
but with a significant long-run
payoff.
Even the short-term pain
could
be
mini-
mized
if a
credible deficit reduction package permitted
the
Federal Reserve
to
ease
mone-
tary
policy. Reviewing various potential reforms in the budget process, CBO argues thatthey are no
substitute
for tough decisions to cut spending or raise
taxes.
But they can
play
auseful auxiliary roleincementing budget
discipline.
The economy has finally embarked on a self-sustaining expansion, though one
that
islackluster
by
historical
standards.
Weak growth abroad, belt-tightening
by
state
and lo-
cal
governments
and
private
businesses,
and a
glut
of
commercial
realestate
are
among
the
factors retarding growth.
CBO
projects
that
real
economic
growth will
be
about
3
percentin1993and1994and
that
short-term Treasury bill
rates
will gradually
climb
from
today's levels.
CBO
does
not try to
project cyclical
ups and
downs beyond
atwo-year
horizon
but
instead
weighs such fundamental factors
as
growth
in the
labor
force,
productivity,
and
saving.
CBO
assumes
that
real growth will gradually
taper
down
to
about
2
percent
a
year
by
1998, unemployment will
decline,
and
short-term
interestrates
will continue
to
inch
up.
As
a silver lining to
this
tepid expansion, inflation is expected to remain low.Questions concerning the budget projections should be directed to CBO's BudgetAnalysis Division
(202-226-2880)
and
inquiries about
the
economic forecast
to the
Mac-
roeconomic
Analysis Division (226-2750). The
Office
of
Intergovernmental
Relations is
CBO's
Congressional liaison
office
and can be
reached
at
226-2600.
For
additional
copies
of
the report, please call the Publications
Office
at 226-2809.
"
~
111
i'

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