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CBO Outlines Modest Economic Growth and Tough Budget Choices Ahead

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Yesterday, the Congressional Budget Office (CBO) released its annual Budget and Economic Outlook for fiscal years 2012 to 2022. Its baseline budget for FY 2012 is for a deficit of $1.08 trillion, with smaller deficits thereafter (e.g., deficits of $585 billion in FY 2013, $345 billion in FY 2014, $269 billion in FY 2015…). Much of this assumes that current tax policies expire on December 31 of this year. Total budget deficits under this baseline are $3.07 trillion over the next 10 years.

CBO also provides an alternative fiscal scenario where current tax policies are extended, the alternative minimum tax is indexed to inflation, Medicare payments are held constant at current levels and sequestered cuts as part of the Budget Control Act of 2011 are not put into place. Under this scenario, total budget deficits are estimated to add up to $10.98 trillion between FY 2013 and FY 2022.

In making these assumptions, it is important to keep the underlying economic projections in mind. CBO has forecast real GDP growth of 2.0 percent in 2012 and 1.1 percent in 2013. It then assumes an average growth rate of 4.1 percent for the years of 2014 to 2017. Inflation is expected to be modest, at 1.2 percent in 2012 and below 2 percent in all other years. The unemployment rate is assumed to be mostly unchanged from current levels and is estimated to be 8.9 percent in the fourth quarter of 2012. We do not reach “full employment” for several years, with the forecasted unemployment rate being 5.6 percent by 2017.

Overall, CBO’s baseline analysis paints a picture where economic growth will be modest at best and where the nation’s fiscal budgetary challenges will only become more serious with time. Hard choices will need to be made to address these fiscal imbalances, with budget deficits in each of the next 10 years under both the baseline and alternate scenarios.

It is also clear that these budgetary discussions will need to focus on both discretionary and mandatory spending in the years ahead. Limiting the conversation to discretionary cuts only will not achieve the savings needed to get us ahead. For instance, defense spending is expected to fall from 4.7 percent of the GDP in FY 2011 to 3.0 percent by FY 2022. Likewise, nondefense discretionary will go from 4.3 percent to 3.3 percent over the same time period.

Meanwhile, mandatory spending – while essentially remaining around 13.5 percent of GDP over the next 10 years – will become an ever-increasing share of domestic spending. Entitlement spending (not including interest on the debt) will grow from $2 trillion today to $3.5 trillion in FY 2022, and interest payments more than double from $227 billion to $624 billion over the same time period.

Chad Moutray is chief economist, National Association of Manufacturers

Debt Ceiling Done, But Congress Has More Work Ahead

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With hours to spare, Congress sent a debt ceiling compromise to the President.  As the August 2 deadline approached, the stops and starts in the negotiations created some tense moments—but did anyone really expect that Washington wouldn’t wait until the last moment?

The President and Congress had to raise the debt ceiling to allow the federal government to pay its bills—bills it had already incurred or promised to pay.  While some argued against raising the debt limit and letting the federal government juggle its finances to pay some of its bills, this strategy would not work.  In fact, a government default on even some of its obligations would hurt everyone—businesses, investors, retirees, and those of us who rely on government services (and we all do to some extent).

While raising the debt limit was a necessary step, it’s clear that Washington also has to do something to rein in federal spending.  Twenty years ago, it cost about $1.3 trillion to run our government.  Today, it costs nearly three times that—an estimated $3.4 trillion this year. Our budget deficit this year is projected to be about $1.5 trillion; we are borrowing 44 cents for every dollar we spend from future generations. This kind of deficit spending is not sustainable and already has begun to threaten long-term economic growth.  Given the historically high level of the federal deficit, it is imperative that policymakers look both at real and immediate spending cuts and structural changes that address the long-term deficit.

To the credit of Washington policymakers, the debt ceiling compromise does begin to address our deficit problem, with an immediate $900 billion cut in federal spending and at least $1.2 trillion more over the next two years.  But this is just a start.  We need further spending cuts that target both the discretionary and mandatory spending sides of the ledger, while also keeping in mind the priorities of a national government.  National defense, for example, is one of the most important, if not the most important, functions of a government.  Congress and the President must preserve our nation’s ability to defend itself and its citizens.

Congress and the President should also avoid taking steps that would stifle economic growth in their efforts to bring down the debt.  Economic growth is an essential component of any plan to rein in our debt.  Growth, for example, produces higher revenues—so we won’t have to borrow as much.

In short, as Congress and the President look for ways to cut spending, they must avoid making the easy political choices and instead opt for a plan that upholds our nation’s priorities and puts us on a path toward a strong, growing economy.

With this latest Washington crisis behind us, Congress has left town for the rest of the summer.  When it returns, it will face other matters of urgency.  Congress still must pass the three pending free trade agreements.  The research and development tax credit is set to expire.  Manufacturers are waiting on Congress to do something about the harmful regulations coming out of federal agencies.

Congress should enjoy the break.  There’s a lot to do ahead.

Manufacturers Urge Lawmakers and President to Increase Debt Ceiling

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Manufacturers have been watching the debate on raising the debt ceiling with great concern over the past month. They understand that if the U.S. government defaults on their obligations, job creators cannot succeed or grow, much compete globally. Manufacturers, such as the LORD Corporation have reached out to elected officials, stressing the importance of reaching a deal to raise the debt ceiling and also to address the ever-growing spending problem in Washington. The letter states:

“America cannot afford to renege on its commitments, and LORD would not be in a position to add jobs if our country were to default on its loans. Assuming that there is a last-minute deal to raise the debt limit and avoid default, the terms of this deal will also have a direct impact on our ability to add jobs and remain competitive in the future.”

Earlier this month, the National Association of Manufacturers sent a press release and joined with over 400 other organizations in a letter to leaders in both the House of Representatives and Senate, as well as to the President, expressing the critical importance of raising the debt ceiling to ensure the stability of our economy, and preventing an economic catastrophe. Default is not an option; it would be a fundamental failure of the government to fulfill the obligations they have made.

The reality is that Washington continues to spend more than it takes in – this is fiscal irresponsibility at the highest level. Individuals are expected to pay their taxes, mortgages and other bills and live within their means – should it be any different for the government? There is no question that we must pay the bills our nation has incurred, but moving forward, an era of fiscal responsibility is needed to sustain the economic health of not only America, but the global economy.

Secretary Geithner Cites Past in Addressing Debt Ceiling

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Treasury Secretary Tim Geithner took a new tack this afternoon in encouraging Congress to act to raise the government’s debt ceiling. Earlier this week, Geithner sent a much-expected letter to Congress making it official that the United States had maxed out on it’s ability to borrow to meet its financial obligations.

At an event hosted by the Harvard’s Shorenstein Center, Geithner reminded Congress that the level of the national debt reflects funds already committed and spent.  In short, this is water under the bridge and we need address this and to move on to the future. Here at the NAM, we, too have found it’s easier to navigate the ongoing budget debate by breaking it down into the Past, Present and Future

In typical Washington fashion, legislators went first to the Present and after more than six months agreed on legislation that funds the federal government until the end of the current fiscal year.  We feel strongly that Congress needs to go back to the Past and raise the debt limit so that the federal government can meet its financial obligations. 

But we can’t stop there.  One reason we are in a fiscal bind is because of high levels of government spending and we must take a look hard look at federal outlays and how we can control federal spending.

Finally, on to the Future, fiscal 2012 and beyond.  The House last month approved a budget blue print and we commend House members for taking on the difficult and challenging task of identifying policies to improve the fiscal situation and to achieve fiscal soundness over the long run. Manufacturers urge the Senate to follow suit so we can start looking ahead.

Click here to view Secretary Geithner’s remarks in full

Dorothy Coleman is vice president for tax and domestic economic policy, National Association of Manufacturers.

Who Wants to be a Deficit Trillionaire? Too Late!

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CBS Marketwatch, “U.S. Budget Deficit Rises Above $1 Trillion.”

WASHINGTON (MarketWatch) — The U.S. recorded a federal budget deficit of $94.3 billion in June, pushing the cumulative deficit so far this year to a record $1.08 trillion, the Treasury Department reported Monday.

Outlays rose in June to $309.6 billion, while receipts climbed to $215.3 billion in the month.

Among the outlays for June is $11.3 billion in Troubled Asset Relief Program funds, the bailout program for banks and U.S. automakers.

At this time last year, the cumulative federal budget deficit was just $285.8 billion.

We’ll need a comprehensive national energy policy just to keep Treasury’s printing presses running at full speed.

Remember the Budget Deficit?

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From the Congressional Budget Office’s new report, “The Budget and Economic Outlook: Fiscal Years 2009 to 2019“:

Under an assumption that current laws and policies regarding federal spending and taxation remain the same, CBO forecasts the following:

  • A marked contraction in the U.S. economy in calendar year 2009, with real (inflation-adjusted) gross
    domestic product (GDP) falling by 2.2 percent.
  • A slow recovery in 2010, with real GDP growing by only 1.5 percent.
  • An unemployment rate that will exceed 9 percent early in 2010.

And the eye-popping news, which takes the wind out of the stimulus sails:

CBO projects that the deficit this year will total $1.2 trillion, or 8.3 percent of GDP. Enactment of an economic stimulus package would add to that deficit.

In CBO’s baseline, the deficit for 2010 falls to 4.9 percent of GDP, still high by historical standards. 

More …


This Week on America’s Business

By | America's Business, General | No Comments

National Association of Manufacturers Executive Vice President Jay Timmons is on the road attending the Democratic National Convention in Denver and next week’s Republican National Convention in Minneapolis-St.Paul.

Timmons, a guest on this week’s “America’s Business” with Mike Hambrick, says Democratic presidential nominee Sen. Barack Obama (D-IL) made history by becoming the first African American nominated to the White House. However, Obama needs to give voters more details on his policies to help manufacturers and workers, he said.

Meanwhile, Timmons said prospective Republican presidential nominee Sen. John McCain (R-AZ) made a smart move Friday in selecting Alaska Gov. Sarah Palin as his vice presidential running mate. She could attract some of the supporters of Sen. Hillary Clinton (D-NY) to the Republican fold, he said.

“If there are those who are looking at this as an opportunity for women to provie they can lead the nation then certainly she can attract some of those former Hillary supporters,” Timmons said of Gov. Palin.

All that talk about American jobs moving overseas may be overblown. We’ll be joined by Exxel Outdoors founder and Chief Executive Officer Harry Kazazian to discuss why his company is moving sleeping bag production back to the United States from China.

America has a hard time balancing its check book. The White House recently announced the federal budget deficit will hit a record $482 billion for the year ended September 2009. Committee for a Responsible Federal Budget President Maya MacGuineas will join us to talk about what effect this massive deficit will have on our economy.

This is the Labor Day holiday weekend. That means its time to get the annual Labor Day economic report from National Association of Manufacturers Chief Economist Dave Huether. Dave will talk about how trade and exports have proven to be a bright spot in the economy.

And with fall approaching football is in the air. Mike will chat with Wilson Sporting Goods plant manager Daniel Riegle about football manufacturing and Wilson’s close ties with the NFL.

In our regular segments, Renee Giachino of American Justice Partnership gives us the latest on tort reform and commentator Hank Cox recalls “The Way It Was.” And our program will close with “The Last Word” from the National Association of Manufacturers President Gov. John Engler.

For more about “America’s Business with Mike Hambrick” and to listen to the program online, please click here. And for video highlights and more, check out http://www.americasbusiness.org.