CBO: 2012 Deficit Would be $630 Billion If Economy Was Operating at Full Potential

On September 27th, 2011, Congressman Chris Van Hollen wrote a letter to the Congressional Budget Office in which he requested an estimate "of the portion of the federal deficit that is due to the current underutilization of capital and labor resources in the economy".

According to Wikipedia.org, the Congressional Budget Office (CBO) "is a federal agency within the legislative branch of the United States government that provides economic data to Congress".

The Congressional Budget Office received Van Hollen's request on September 27th and had an answer for him by October 4th.

According to the CBO, the federal deficit for the 2012 fiscal year is currently projected to be $973 billion.

If the economy was operating at its "potential level", the CBO surmises that the United States would post a deficit of roughly $630 billion for the 2012 fiscal year.

According to the CBO, the deficit would be lower because "incomes and revenues would be higher, while the rate of unemployment and outlays for certain government programs would be lower".

Basic stuff - more people working would result in higher tax revenues and lower expenditures for certain government programs.

The $630 billion deficit would be the very definition of a "structural deficit", which is when a deficit is posted regardless of how well the economy is functioning. So, no matter what happened with the economy, the United States would be posting a deficit in the 2012 fiscal year regardless.

Source: CBO.gov - The Portion of the Deficit Due to Cyclical Weakness

Filed under: General Knowledge