7 Feb 2014
Flash: US Federal Projections - BAML
FXStreet (Guatemala) - Marcus Huie, Rates Strategist at Bank of America Merrill Lynch looked into the 10-year US federal budget projections.
Key Quotes:
"The Congressional Budget Office recently released its 10-year US federal budget projections. The FY14 CBO baseline deficit forecast fell $46bn to $514bn, compared with its previous estimate published in May."
"However, the budget forecasts for the following five years, 2015-19, rose an average of $105bn per year. The CBO explains that its FY14 fell because of a technical adjustment related to emergency funding, as hurricane relief spending in 2013 was not extended to 2014."
"On the revenue side, the effects in 2014 were mixed: There was a $13bn upgrade in social insurance taxes offset by a $29bn downgrade in corporate income taxes. Surprisingly, the CBO did not make substantial changes to the assumptions regarding health insurance coverage and the fiscal impact of the Affordable Care Act, as it claimed that the data were still too scarce to overturn its prior assumptions."
"The main driver of the long-term increase in the CBO deficit estimates beyond 2014 was a decrease in long-term potential GDP growth, from 2.3% to 2.2% annually. The lower potential GDP growth was attributed to lower productivity, insufficient capital formation, and reduced labor supply. This had the effect of suppressing revenue growth over the long term, and caused the cumulative 10-year deficit estimate to increase by just over $1tn."
Key Quotes:
"The Congressional Budget Office recently released its 10-year US federal budget projections. The FY14 CBO baseline deficit forecast fell $46bn to $514bn, compared with its previous estimate published in May."
"However, the budget forecasts for the following five years, 2015-19, rose an average of $105bn per year. The CBO explains that its FY14 fell because of a technical adjustment related to emergency funding, as hurricane relief spending in 2013 was not extended to 2014."
"On the revenue side, the effects in 2014 were mixed: There was a $13bn upgrade in social insurance taxes offset by a $29bn downgrade in corporate income taxes. Surprisingly, the CBO did not make substantial changes to the assumptions regarding health insurance coverage and the fiscal impact of the Affordable Care Act, as it claimed that the data were still too scarce to overturn its prior assumptions."
"The main driver of the long-term increase in the CBO deficit estimates beyond 2014 was a decrease in long-term potential GDP growth, from 2.3% to 2.2% annually. The lower potential GDP growth was attributed to lower productivity, insufficient capital formation, and reduced labor supply. This had the effect of suppressing revenue growth over the long term, and caused the cumulative 10-year deficit estimate to increase by just over $1tn."