Today, OMB released the Mid-Session Review (MSR), which updates the Administration’s estimates for outlays, receipts, and the deficit in light of economic, legislative, and other developments since the President’s 2013 Budget was released in February. As it does each year, the MSR shows the budget outlook under the Administration's policies, which for fiscal year 2013 include the full enactment of the President’s proposals promoting jobs and economic growth and balanced deficit reduction.
Consistent with the February Budget, the MSR shows that under the President’s policies deficits will be reduced to below 3 percent of GDP by 2017 and remain below 3 percent through the rest of the decade. As a result, debt held by the public as a percent of GDP will be stabilized by 2015 and then set on a downward trajectory through the rest of the decade.
The MSR shows an improvement in the deficit in 2012 and over the following ten years (2013-2022) compared to February’s projections. For 2012, the deficit is now projected to be $1.211 trillion, $116 billion lower than the $1.327 trillion deficit projected in February. This reflects lower-than-expected spending, partially offset by lower-than-expected receipts. As a percentage of GDP, the 2012 deficit is now projected to equal 7.8 percent, down from 8.5 percent projected in February. Cumulative deficits over the 2013-2022 period are projected to be $240 billion lower than forecast in February.
The MSR economic forecast, which was completed in June, makes only minor modifications to the economic forecast included in the President’s 2013 Budget. As in the Budget, the MSR projects the economic recovery that began in 2009 will continue at a moderate rate and unemployment will gradually decline.
The MSR notes that much of the improvement in the economic picture since late 2008, when we were in midst of the worst recession since the Great Depression, resulted from the American Recovery and Reinvestment Act (Recovery Act) and other growth-creating legislation promoted and signed into law by the President. However, the MSR also notes the economy still faces significant headwinds that have held down growth and limited gains in employment.
Enactment of some of the President’s proposals to promote near-term economic and job growth in the face of such headwinds has been delayed by Republicans in Congress. The MSR assumes these proposals, which have traditionally earned bipartisan support, will still be enacted. The delayed enactment shifts costs into later years, accounting for part of the expected drop in the 2012 deficit and some of the small increase in the 2013 deficit compared to the February projection.
With the enactment of these measures, the MSR projects real GDP will grow at a rate of 2.3 percent in 2012 and 2.7 percent in 2013 (year over year). The MSR then projects stronger growth for 2014 through 2018, as the economy absorbs unused capacity and returns to its potential. In the long run, the MSR projects real GDP growth to average 2.5 percent, which is unchanged from previous forecasts.
The MSR also reflects the Administration’s belief that Congress can and must enact a comprehensive and balanced deficit reduction package, along the lines of the President’s Budget that includes additional measures to strengthen the near-term economy and create jobs, and puts the Nation on a sound long-term fiscal course. That package should avoid the sequestration scheduled to take effect on January 2, 2013. The sequestration is, by design, bad policy that will have destructive effects on both defense and non-defense programs and services. With more than five months remaining before the sequestration must be initiated, Congress has ample time to act. The Administration stands ready to work with Congress to get the job done.
Jeffrey Zients is the Acting Director of the Office of Management and Budget.