Friday Night Dump: CBO Admits Error, Now Expects Another $600 Billion In Deficits From Obama Tax Cuts

Tyler Durden's picture

Two weeks ago, when we commented on the biggest farce in financial thinking at the time (promptly replaced by the even more lunatic platinum coin "idea"), namely that one of the main "spending cut" proposals of the Obama administration, amounting to $290 billion, was the assertion that the US will save hundreds of billions because, get this, interest rates are now lower than they were before. We commented as follows: "this is where one's Excel refs out, because the interest payment on Treasuries, at least in a non-banana republic, one set to see 120 debt/GDP in 3-4 years, is a function of fiscal decisions (central-planning notwithstanding), and to make the idiotic assumption that one can control interest rates for 10 years (central-planning notwithstanding), just shows what a total farce this whole exercise has become, and also shows that nobody in the administration, or the GOP for that matter, has even modeled out the resultant budget pro forma for the proposed tax hikes and budget "savings" as that would blow up said excel model immediately." We now learn that one other entity that did not fully model out the last minute Fiscal Cliff deus ex, and especially not the recursive debt relationship in a country where half the government spending is funded by debt, is the always amusing CBO (whose epic prediction failure rate has been discussed here on numerous occasions).

It appears that they just did... after the close... on Friday. The outcome? Their initial estimate of a $4.0 trillion budget increase was wrong and when one factors in the fact that this incremental spending would have to be funded by, you guessed it, debt, debt which has interest, the full impact of the Obama tax cut rises deficits by 15% to $4.6 trillion over the next decade.


But what's $600 billion for a nation that is now discussing idiotic gimmicks involving $1 trillion coins as a means to avoid reality.

Here is the Friday night bomb in all its glory (link):

Relative to what would have occurred under the laws previously in effect, this legislation will increase budget deficits in coming years.


Like all of CBO’s cost estimates, our estimate for this legislation shows the effects of the legislation relative to current law at the time we did the estimate. Relative to the laws in place at the end of 2012, we estimate that this legislation will reduce revenues and increase spending by a total of nearly $4.0 trillion over the 2013-2022 period. (Also like all of CBO’s cost estimates, this estimate’s numbers for the effect of changes in the tax code—which represented the bulk of the bill—were produced by the staff of the Joint Committee on Taxation. They published the details of their tax revenue estimates separately.)


From that perspective, why will the legislation increase deficits? Mostly because, under the laws previously in place, numerous tax provisions originally enacted in 2001, 2003, and 2009 would have expired. As a result, in 2013 personal income tax rates would have gone up for people at all income levels, the alternative minimum tax (AMT) would have applied to many more people, estate and gift taxes would have risen, and a number of other revenue-increasing changes in tax law would have taken effect. This legislation will prevent those changes in law from occurring or reduce their scope; hence, relative to what would have happened without the legislation, it embodies substantial tax cuts. The legislation also will boost deficits by increasing spending, mostly for refundable tax credits and unemployment compensation.


That dramatic widening of the budget deficit will increase interest payments on the federal debt, an impact that is not included in CBO’s cost estimates. The additional debt service will cost about $600 billion. Thus, if we added the estimated cost of the legislation and the related debt service to our previous baseline budget projections (which followed current law at the time), we would show additional deficits between 2013 and 2022 of roughly $4.6 trillion.

And, while tangential, here is something else rather funny: the CBO attempts to predict the GDP in 2022, in both absolute terms and relative to the prior baseline. While ludicrous, at lest they get the general direction right:

What Effect Will the Legislation Have on the Economy over the Longer Term?


Although we expect that the legislation just enacted by the Congress will lead to higher output and income in 2013 we also expect that it will lead to lower output and income later in the decade than would have occurred under prior law. The legislation lowers tax rates for many people—thereby boosting output—but it also expands budget deficits—which will reduce national saving and lower the stock of productive capital, thereby reducing output relative to what would have occurred under prior law. CBO has not estimated the longer-term economic effects of the legislation itself, but we previously estimated the economic effects of the aforementioned alternative fiscal scenario, which embodied the assumption that many policies that were in effect or had recently been in effect would be continued. Under that scenario, as described on page 37 of our Update, we estimated that real gross national product (GNP) would be 1.7 percent lower in 2022 than would have been the case under prior law. .

Remind us to look back on this post in one decade to find just how misplaced that decimal comma truly was.

* * *

Is it just us, or does it really seem like nobody is even trying to mask the fact that the iceberg has been hit head on?

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nope-1004's picture

Had they named it "credit account", it prolly would have lasted.  Merikans understand having debt, "but WTF is capital"?


Michaelwiseguy's picture

That's $46 trillion over the next century and $460 trillion over the next millennium. It's just math.

knukles's picture

Confirmed it's business as normal, nothing's changed.
And after all the heebie geebies we've gone through the last sevral days.

Nothing like the smell of rotten drama in the morning.

Mactheknife's picture

A trillion here...a trillion there and pretty soon you're talking about real money.  Oh wait..I forget...we're not talking about REAL money in any amount of dollars.  Those assholes should have sent this thing over the cliff.

boogerbently's picture

What....oh, wait a minute.....Whoopsie !!

trav777's picture

what does it matter?  put as many of these dollars as you can into your pockets.  The nation of "USA" is dead.  It died decades ago.  Don't mourn for it, just move to the acceptance stage and get on with things.

The Constitution and all those high-minded ideals are dead. They were invented by white slave owners, so they're illegitimate anyhow.  What's legitimate is brown-style government, banana republic, generalissimos, chiefs, warlords, and gangster states.  Systems where the law is whatever the Man says it is.

"The Man" is a very literal phrase.  It means exactly what it says and comes from a chieftain style of government.  The Man owns and runs everything and can do as he wants.  If he decides to give stuff that you thought was "yours" to someone else, that's his prerogative.  It wasn't yours anyhow, it was The Man's.

A lot of people in the world live under The Man.  They seem to be pretty OK with it.  I was just in Africa and saw "Elect R. Mugabe for President" T shirts on people and no, it's not a joke.  The dude wins despite having destroyed the economy totally in the span of 10 years.  This type of populace doesn't mind corruption or incompetence or criminality; it's the Man's prerogative to do these things.

Taffy Lewis's picture

Spot on, Trav, as usual.

The USA is Rhodesia becoming Zimbabwe with an injecition of 3rd world hispanics. The only variable is the timeline.

It was easier to figure out for me because I came back to the U.S. three years ago after almost all of the previous 30 years outside of it, the last 10 in Southeast Asia. The change after 30 years is astonishing.

For me, it's come down to "choose which 3rd world country you want to live in and where you want your children to grow up". I choose SE Asia and I am thankful for the can-kicking because it allows me to execute my plan to move back; as of today, end of 2013 or 2014.

Theta_Burn's picture

Really, If there is anyone here who didn't expect the exact opposite of what was spewed, step foward for your kick in the nutz...

Wheres the bigger betrayal, is it this shocking revelation, or that EVERYONE in .gov just went with the flow?

disabledvet's picture

This is a tax INCREASE not a tax cut you dopes. read the stupid headline first. Also "never underestimate the greedy when they want to slash your benefit check." Obviously there are many ways to cut spending as the "axe wielders" start whacking. Obviously Defense will be untouched by this. But all spending bills originate in the House of Reps so "that's where all the power is." the Dividers are already screaming "screw the American people! Give me the money!" unfortunately the debt ceiling is also up to Congress so if you want the dough you're going to have to find a way to stretch the buck..."Governmentally." which is a good thing of course...

Chump's picture

Heh, except it's compounding...

akak's picture


Merikans understand having debt, "but WTF is capital"?

It's a building in Washington DC where omnipotent men decide our fate with wisdom, benevolence and only the purest of altruistic intentions.

Go Tribe's picture

I don't know. But I know an alien when I see one, and that single Christian girl in the upper right corner is downright spooky.

unrulian's picture

haha no kidding...

Single and Alien?

Find Zods match for you at


Jam Akin's picture

Identify the apple of your eye at

PhD's picture

Well, they do know the term "capital offence".

Perhaps they thought it was a show keeping account of the recent capital punishments

HelluvaEngineer's picture

If Lauren needs a job, I'm sure I can think of something to help out.  Just sayin'

FEDbuster's picture

She will do just fine, but I really did like that show.  Good guests, and Lauren gave them a chance to talk and answer questions.

S5936's picture

And rat face Matt Lauer makes 18 mil per annum. I'd say the planet is slightly upside down eh? Bizzaro world is alive and well... I need a stiff drink.

Dasa Slooofoot's picture

You sure they're cancelling the show?   Reads like just the producer is leaving.  

ImReady's picture

Damn I miss those legs already! 

Buck Johnson's picture

I started getting into watching her show a few months back, I thought it was great.

ball-and-chain's picture

I've got bad news.

In order to solve this debt problem, we need to raise taxes and cut spending.

This depression is painful.

It's going to go on for decades.

We are Japan.

trav777's picture

so we have a high-tech, orderly society, with high speed rail, clean facilities, pristine cities, and a vanishingly low crime rate?

You morons act like Japan has a problem.  in a world of CONTRACTION, you don't want the demographics of growth.

Lin S's picture

Pay no heed to this unfortunate revelation.  Just repeat after me:

Forward, bitchez!

edb5s's picture

All will have been forgotten (or never noticed in the first place) by Monday just in time for another rally on no news

ShorTed's picture

From bad to worse to... 


!@#$%^&* you politicians!

Muppet Pimp's picture

TD et. al. - I can no longer access your site through normal channels (my desktop or my phone).  In addition Google chrome does not allow my twitter to work and my android phone will not load pages from my twitter app. 


This may be an opportune time to short goog if others are experiencing similar.  Liberty not popular with TPTB in the US it seems. 

Hopefully this is a technical issue unrelated, but if you use the secret sauce it is still accessible for now . Lator.

Muppet Pimp's picture

Back live through regular channels.  Was able to access through alternative channels while being blocked elsewhere (hence the above comment, this one is regular).  Hmmmm.

Advice to my peeps stateside: Keep an eye on the US mint and supplies of real money coins.  If we soon see 'no supplies' or 'temporary shutdown' etc. This could be a sign of the tryanny getting closer.  Just my opinion, .gov is broke expect shenanigans.

Blackfox's picture

Some Friday humour...

Wealthy Indian spends £14,000 on a shirt made of GOLD to impress the ladies.


akak's picture

"I am doing the pitying of the fool who is not finding me the sexy!"


OK, OK, so you can wear it .... you still can't eat it!

FEDbuster's picture

I wonder how long it will be before I have one of the new trillion dollar platinum coins jiggling around in my jeans pocket?  I will save a spot next to my $100 trillion Zimbabwe bank note on my desk.

akak's picture

Is that a $1 trillion platinum coin in your pocket, or are you just happy to see Ben?

FEDbuster's picture

That would be a $10 trillion dollar platinum bar or a roll of 20 coins.

knukles's picture

Gonna give New Meaning to "Having the Shirt Stolen Off Your Back."

francis_sawyer's picture

The joke is going to be on him when he realizes the shirt was made by some jewish 'goldsmith' tailors who filled all the little gold pieces with tungsten...

HelluvaEngineer's picture

Completely stupid.  How can you dance on a hilltop with 50 other people while wearing that heavy shirt?

SilverRhino's picture

DAMN .... that makes Mr T look fucking low ley.  


zilverreiger's picture


nmewn's picture


Benny's still my bitch.

toady's picture

What's a few quadrillion among friends?

knowless's picture

yay! we're almost to quintillion!

Mark123's picture

Wouldn't it be great if we the people took up arms and marched on New York and Washington to enforce the law and punish the criminals in charge?



FEDbuster's picture

That's why there is an urgency to take away your ability to keep and bear arms.

ZeroAvatar's picture

I ran across this yesterday:


I might take a coupla days & ride the hog up to D.C.

Cursive's picture

Uh, so do our brilliant legislators get to re-vote it?  Disgusting. 

knukles's picture


They already had their 3 minutes to read the bill

phoolish's picture

We have sailed over the Weimar Falls.


Act Accordingly.