Good News: Early Forecasts: 2022 Deficit Cut in Half
Better News: In May, CBO Forecasts Closer to $1Trillion, About the Same as 2019
Best News: May Data Indicates a Decline to 2017’s $0.7 Trillion Level (3/4ths Reduction)
The May YTD deficit for fiscal year ending in September, 2022 was $426B, down 79.4% from the $2,064B level of FY 2021. The total FY 2021 deficit was $2,772B, so the same percentage reduction for the whole year estimates a $572B deficit for FY 2022. Visually, the year-to-date pattern most closely matches 2017 which ended with a $666B deficit. In fiscal years 2018 and 2019, the additional deficit for the last 4 months of the year was $245B and $247B, respectively. That gives us a forecast of $672B for FY 2022. DC insider, Wrightson ICAP, recently forecast a deficit of $600-700B.
https://rollcall.com/2022/05/09/tax-revenue-boom-fuels-steep-budget-deficit-decline/
Good News: CBO Forecasts FY 2023 and FY 2024 Deficits at Same Levels as FY 2022
Good News: Public Debt as % of GDP is Forecast to Be Down for 2022-27
Good News: FY 2022 Government Deficit % of GDP is Best Since FY 2015
The conservative forecast of $700B deficit for FY 2022 is 2.8% of the CBO estimate of FY 2022 GDP at $24,694B. The CBO forecast Deficit/GDP ratios of 3.8% and 3.9% for the next 2 years, roughly the same as the pre-pandemic 2018 rate.
Good News: Government Fiscal Stimulus is a 3.5% Annual Drag on the Economy
The reduced federal deficit and state/local deficits compared with history provided a very large drag on first quarter GDP, but the economy recovered in the second quarter and is forecast by the CBO to deliver 3% overall real GDP in FY2023 after a very strong 4.4% in FY2022.
https://www.cbo.gov/data/budget-economic-data#4
Context
Spending reductions are sustainable.
Revenue increases are not sustainable, coming in as much as 2% of GDP higher than trend or expectations. The 2021 economy was very healthy, resulting in spillover tax receipts in 2022 that will not continue.
Spending at 22-24% of GDP cannot be funded by revenues of 18% in the long-run.
Our economy has operated effectively for the last 4 decades with a federal budget deficit averaging 2.5% across the business cycle. Starting with 2.8% in 2022 is an unexpectedly good place. Congress and the president will struggle to maintain this level without significant spending or revenue changes in the next budgets.
https://www.crfb.org/press-releases/cbo-reports-63-billion-deficit-may
https://www.politico.com/news/2022/05/25/u-s-deficit-congressional-budget-office-00035052
https://rollcall.com/2022/05/09/tax-revenue-boom-fuels-steep-budget-deficit-decline/
Good News 