The Budget and Economic Outlook: Fiscal Years 2010 to 2020

Chairman Conrad, Senator Gregg, and Members of the Committee, thank you for inviting me to testify on the Congressional Budget Office's (CBO's) most recent analysis of the outlook for the budget and the economy. My statement summarizes CBO's new economic forecast and baseline budget projections, which cover fiscal years 2010 through 2020. Those estimates were released on Tuesday in the report titled The Budget and Economic Outlook: Fiscal Years 2010 to 2020. The Congressional Budget Office projects that if current laws and policies remained unchanged, the federal budget would show a deficit of about $1.3 trillion for fiscal year 2010 (see Table1). At 9.2 percent of gross domestic product (GDP), that deficit would be slightly smaller than the shortfall of 9.9 percent of GDP ($1.4 trillion) posted in 2009. Last year's deficit was the largest as a share of GDP since the end of World War II, and the deficit expected for 2010 would be the second largest. Moreover,if legislation is enacted in the next several months that either boosts spending or reduces revenues, the 2010 deficit could equal or exceed last year's shortfall. The large 2009 and 2010 deficits reflect a combination of factors: an imbalance between revenues and spending that predates the recession and turmoil in financial markets,sharply lower revenues and elevated spending associated with those economic conditions, and the costs of various federal policies implemented in response to those conditions. The deep recession that began two years ago appears to have ended in mid-2009. Economic activity picked up during the second half of last year, with inflation-adjusted GDP and industrial production both showing gains. Still, GDP remains roughly 6½ percent below CBO's estimate of the output that could be produced if all labor and capital were fully employed (that difference is called the output gap), and the unemployment rate, at 10 percent, is twice what it was two years ago.download