CBO revises estimate, warns U.S. economic growth will underwhelm in 2014
posted at 4:01 pm on August 27, 2014 by Noah Rothman
The Congressional Budget Office released a bit of a good news/bad news report on Wednesday regarding the state of the U.S. economy and federal budget.
In the bad news column, CBO projected 2014’s GDP growth at just 1.5 percent. The report blamed this revision on “the surprising economic weakness in the first half of the year.”
In early June, the International Monetary Fund projected the United States to grow by just 2 percent this year, revising its own estimate down from a previously anticipated 2.7 percent GDP expansion.
This report is not likely to be warmly greeted by the White House.
“The new assessment was considerably more pessimistic than the Obama administration’s, which predicted last month that the economy would expand by 2.6 percent this year even though it contracted by an annual rate of 2.1 percent in the first quarter,” USA Today reported.
As Ed Morrissey observed in March, the administration proposed what even The New York Times called a progressive “wish list” in the form of a budget which relied on significant projected economic growth to avoid conceding its bank-breaking nature.
[T]he Obama administration assumes a growth rate of 3.1 percent in 2014, when CBO expects 2.7 percent and the private sector consensus comes in at 2.5 percent, according to Investors Business Daily. The actual GDP growth rate for 2013 was 1.9 percent, according to the Commerce Department , down from 2012’s 2.8 percent, and leading indicators for 2014 offer little hope for any kind of sharp rebound from stagnation.
Morrissey also noticed that the Obama budget supposed that Congress would pass a pro-growth “tax reform” package (code for tax increases) to generate enough revenue to cover the cost of its myriad progressive spending proposals. That did not happen, and this lame duck Congress is highly unlikely to craft, let alone pass, a divisive proposal aimed at reforming the tax code.
As for the good news, The Wall Street Journal reported, the CBO projected that the annual federal budget deficit is going to be smaller than previously projected.
The CBO said the deficit through 2024 is expected to be more than $400 billion smaller than the forecast in an April report. For fiscal 2014, which ends Sept. 30, 2014, the CBO predicted an annual deficit of $506 billion, a shortfall that is smaller when compared with previous years but slightly more—$14 billion—than it predicted in its earlier forecast.
The budget deficit was expected to close at a faster pace in 2014 than the CBO estimates it will, but the deficit will nevertheless fall to its lowest level since 2007. A declining jobless rate and an increase in the number of working taxpayers is resulting in an increase individual and corporate tax revenue to the government, helping narrow that gap.
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