Wednesday, February 01, 2012

The CBO Budget and Economic Outlook

Comments for the Record

U.S. House of Representatives
Committee on the Budget

The CBO Budget and Economic Outlook
210 Cannon House Office Building
February 1, 2012, 10:00 AM

By Michael G. Bindner
Center for Fiscal Equity

Chairman Ryan and Ranking Member Van Hollen, thank you for the opportunity to submit comments for the record on this issue. Our comments provide a model we presented for the House Ways and Means Committee last fall on Joint Tax Committee forecasting issues. At the end, we will provide our updated predictions for the current year. We urge the CBO to examine our data and analysis and add it to their toolkit.

The Center for Fiscal Equity has developed a model of how deficit financing effects economic growth rates in the aggregate, which we call the financial margin, where the financial margin is the deficit/surplus added to outlays for net interest, all expressed as a percentage of Gross Domestic Product (GDP) and regressed onto growth in real GDP in the next year, removing inflation from the analysis. See the following table for the data set used in these analyses.

(Please see http://fiscalequity.blogspot.com/2011/09/economic-models-available-to-joint.html  for this section of my comments, which include graphics files, and which are substantially identical to this testimony begining with the data tables).

Based on FY2011 budgetary results, we estimate FY2012 growth to be 1.6%. . In this model, lower spending results in a more anemic recovery. Our comments raise serious issues that must be dealt with in determining fiscal policy in the near term. Further adherence to current tax policy may lock us into a model where unsustainable debt is necessary to sustain the economy. Finding a way out of this debt by reverting to a more rational tax policy, based on these data, is essential.

Thank you again for the opportunity to present our comments. We are always available to members, staff and the general public to discuss these issues.

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