CBO's updated economic and budget projections, released this morning, show for the first time in many years a declining debt path under current law. Unfortunately, these projections are wildly optimistic, given that they assume things like the tax cuts and AMT patches expire in 2013. But we'll take whatever progress we can get!
Under current law, CBO projects debt to reach 67 percent of GDP this year, rise to about 73 percent in 2013, and then fall to 61 percent by 2021. Clearly, the current law scenario shows that if policymakers were to strictly adhere to PAYGO, our debt path would be much, much healthier.
Current law debt has fallen dramatically since the March projections as a result of the spending cuts enacted back in April as part of the FY 2011 appropriations deal, the discretionary spending caps put in place just a few weeks ago in the Budget Control Act (BCA), and $1.2 trillion in savings expected from the Super Committee (and reinforced in law by automatic spending cuts).
In addition, CBO is projecting fairly similar growth in the economy as before, but now assumes inflation and interest rates will be slightly lower. This has pushed interest payments and inflation-indexed spending down over the coming decade. But we'll have more on the economic changes later.
Be sure to check back to The Bottom Line
and to CRFB later for continued in-depth analysis.