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 2012 Budget was released in February.
The MSR largely confirms what we already know and what the recent CBO analysis showed: we need to get back on a sustainable fiscal path and invest in long-term economic growth and job creation.
As expected, the short-term deficit projection is down measurably due to a combination of higher-than-previously-expected receipts and lower-than-expected outlays. The 2011 deficit is now projected to be $1.316 trillion, a $329 billion – or 20 percent – decrease from the $1.645 trillion deficit projected in February. As a percentage of GDP, the deficit is now projected to equal 8.8 percent, down from 10.9 percent projected in February.
Three significant developments are driving this change: a $140 billion increase in receipts as returns came in higher than expected; a $76 billion decrease in mandatory program spending relative to the Budget due to re-estimates; and a $104 billion decrease in discretionary spending relative to the President’s Budget request (a little less than half of this decrease – or $46 billion – is attributable to reductions from the FY 2011 full-year appropriations).
Longer term deficit projections have also been adjusted downward – a shift that reflects the terms of the recently-passed Budget Control Act, which capped annual discretionary spending and established a process for achieving further deficit reduction.
It’s important to note that we did something different this year to account for unique circumstances. Given the economic volatility over the past few months – and in the interest of delivering the most transparent and current report possible – we conducted a supplemental forecast that accounts for recent economic activity. This alternate forecast shows that while recent economic turbulence is a major concern because of the impact on individuals, families, and businesses, short- and long-term budget projections have not changed significantly because of it.
Even so, the MSR underscores the need for further action to reduce our long-term deficit and jumpstart economic growth. Job creation is critical to this strategy, and it remains the President’s top economic priority. That’s why the President directed his economic team to develop a package of new initiatives that will help grow the economy and create jobs, and do so in the context of his overall approach to fiscal policy.
On September 8, the President will deliver a speech to a joint session of Congress outlining his plan for job creation. The plan will build on steps the President has been urging Congress to take for months, and will also include a host of new measures that will accelerate job growth in the short term. It will be a package with ideas that have traditionally earned bipartisan support and that are supported by a wide range of experts as the most effective and efficient way to grow the economy and create jobs.
Jack Lew is the Director of the Office of Management and Budget.