CBO confirms recession and war caused surplus decline: CBO Director Dan Crippen said "over 70% of (FY2002 surplus reduction) results from the weak economy and related technical factors" (source: CBO testimony 1/23/02). CBO said bipartisan tax relief resulted in less than 12% of the surplus decline in FY 2002.
CBO Shows Strong Fiscal Position in the Baseline: Slight baseline deficits of $21B in FY 2002 and $14B in FY 2003 give way to a baseline surplus in FY 2004 of $54B. CBO projects a $1.6T surplus between 2002-2011.
OMB & CBO Budget Outlooks Are Quite Similar: CBO shows historically small deficits, especially given the simultaneous effects of war, recession, and emergency. However, some differences explain the small variance in surplus projections:
· OMB assumes an economic stimulus plan and other policies will be enacted.
· CBO assumes the $20B emergency response fund continues indefinitely, which will certainly not be the case. This calculation reduces CBO\’s 5-year surplus by $100B.
The Terrorist Attacks and the Weak Economy Reduced CBO\’s 10-year Surplus by almost $2T Since CBO\’s August Update: Since the August CBO update, the 2002-2011 surplus projection fell from $3.4T to $1.6T.
The Economy Took a Severe Downturn After September 11th: 943,000 jobs were lost, the stock market dropped, and consumer confidence plummeted.
· 943,000 jobs were lost in the last quarter of 2001.
· Unemployment rose by close to 1% (0.8%) in the last three months of 2001.
· Stock market dropped by 12% by September 21st.
· Consumer confidence plummeted 26% by October.
· The airport and airline industry was entirely shut down.
Recession, War & Homeland Security Spending Were Responsible for over 85% of the Surplus Decline: CBO\’s projections confirm that tax relief played a minor role in the surplus decline in the next few years – accounting for less than 12% of the decline in 2002 and less than 28% in 2003 (calculations made by OMB based on CBO projections).
CBO Already Calculated Effects of Tax Relief in the August Update: The bipartisan tax relief package was already assumed in CBO\’s August projections.