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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Al Huxley's picture

So as I read this, instead of drowning in 100 ft of water, we are now drowning in 120 ft, correct?

booboo's picture

Oh my, what a bust. Refering to the CBO numbers not Lauren Luster, I mean Lyster which reminds me of Listerine which reminds me of gargling which reminds me of Lauren again.

Cdad's picture is definitely not just you.  However, and since what we are dealing with, what ZH is dealing with, is an entrenched establishment that HAS ALREADY FAILED, it is exhausting.  And as such, and since the math is obvious and can no longer be avoided, said establishment simply says and does whatever it wishes...ultimately waiting for the day that the population finally "comes for them" one way or another, and said establishment is finally determined to be "illegitimate."  

And having piled up more than $16 trillion in debt, spending the money of unborn generations on wars, buying political influence and votes, welfare, etc...our Federal Government is quite obviously illegitimate.  That much is already clear.

As for how the people come to finally tap this government on the shoulder to say..."you're out"...well, that will come in one way or another.  I think the way it is happening already is simply through the collapsing economy...or the failure of people to participate in it.  Maybe that movement is held off awhile...until the govt finally defaults.  Another complete market crash is very near...maybe that's it.  Succession anyone?  Maybe some other sort of revolution takes place.

But no, Tyler.  You are not alone.  And those of us who read you every day...we thank you for the frustration you feel when such obvious things as this come up...the CBO.  A complete joke...for many decades.

Many thanks [Cdad ripping out hair]


petolo's picture

The Ceausescu moment is approaching .

Jam Akin's picture

Anything less than a trillion is merely a rounding error these days.

Clint Liquor's picture

This is just plain silly. There will be no debt to service in 2022.

There will also not be a US Dollar or 454 Trillion in nominal interest derivatives. It all be swept away like so much confetti after a parade.


Winston Churchill's picture

Slightly off subject.

Went to one of my banks the other morning to transfer money overseas.

Do it on a regular basis,first time this year.Always less than 10k at a time.

New bank requirement for overseas wire;TIN required.

Took two days to get there instead f two hours normally.


BraveSirRobin's picture

Well, I guess stamping 12 zeros on a coin is harder and takes longer than typing them in a computer. So, I guess this is progress in the right direction.

Al Huxley's picture

I thought it was all good though, because the FED gives the interest back to the govt, so no need to worry about 600 billion here or there...

Al Huxley's picture

BTW, I'm using the above to angle for an anchor position with CNBC - does it fly?

Mike in GA's picture

I think it was great!  Sounded like it was straight from the mouth of The LIESman.

Sudden Debt's picture

does it matter what will happen in 10 years in theory?

this system won't float for another 10!

The question when will they adress the people where they need to say that they'll devalue the currency by at least 50% to keep the lights on another day.

Pensionfunds collapsing is on of the worst things in our history that will happen.
It will break down or society.
And that's not 10 years from now!
That's in 1 or 2 years from now!

Frank N. Beans's picture

meaningless to look out 10 years

after all, what did they say 10 years ago about today's debt?

knukles's picture

20 years ago the deficit was forecast to disappear in 10 years.
Clinton had a year or two of "surplus" and the Fed was worried about the dwindling supply of Treasuries?

Honest injun, folks.
(speakum with forked tongues)

SKY85hawk's picture

In 2002 they were talking about Surpluses as far as the eye can seeeeeeeeeeeeee

surf0766's picture

Their prediction was good for how many weeks?

Zap Powerz's picture

Im genuinely interested to see what happens during and after this economy collapses.

I wonder if humans will remember to never ever repeat this mistake again?

Why do humans continually try to change the laws of nature?  Wouldnt it be more productive and less painful to work with the laws of nature rather than against them?

Poor Grogman's picture

One little nibble from the tree of knowledge and everyone acts like they are a god.

We are smarter now, this time it really is different.

Nothing new to see there...

Radical Marijuana's picture

We ARE working within the laws of nature! Energy goes down the path of least resistance, which, in human terms, is the path of least morality. In systems, the most labile component controls the system. In human societies, the most dishonest and violent people are the most labile component, which have evolved to control civilization.

FRAUD does not actually break the laws of nature. FRAUD simply takes advantage of the laws of nature. When "money" appears to get made out of nothing, as debts, and then those who can make money out of nothing find more and more excuses to make more and more money out of nothing, as debts, (and those numbers therefore go up exponentially, in astonishing ways, like this article points out) there is nothing happening that changes the laws of nature.

The "conquest" of nature was ALWAYS the conquest of some men, by other men, using natural laws to their advantage. There is nothing about fraud, backed by force, that changes the laws of nature. That is simply the result of the smartest people, evolving to become the best at doing that, while driving others to become too incompetent to be able to understand what is going on.

Lies, backed by violence, are working with the laws of nature, not against them. Of course, a big part of that was deliberately dumbing down enough people, so that enough of them could be fooled, enough of the time. For instance, believing in the official story about the events on 9/11/2001 requires ignoring basic laws of physics and common sense about materials like steel. But nevertheless, that was quite successfully done by the mass media, to most of the American people.

??? Your comments, Zap Powerz, would lead me to presume that you are a "reactionary revolutionary" who wants to believe in impossible ideals, and false fundamental dichotomies, and therefore, has solutions to our problems lined up like ducks in a row, going BACKWARDS.

One of the greatest triumphs of the ruanway fraudulence that controls our society is the runaway ability to brainwash people to think about things BACKWARDS, which backwardness is as profound as an infinite tunnel of deceits. I believe it is vital to understand that money is based on murder. Those who were the best at that have taken covert control over the powers of government, and have already achieved almost total privatization of those sovereign powers to rob and to kill. That is WHY there are runaway Federal government debts, leaping by the $trillions and $trillions, wherein a half a trillion can be mistakenly miscalcuted, and yet, most people will not even know that happened ...

The debt controls depend upon the death controls. That system is now totally out-of-control insanity, beyond the established systems to fix themselves. The correction of that insanity, by natural laws trumping human laws, appears to be the only thing left ... BUT, we will not like that, and it would be nicer if some series of political miracles could happen instead. The future will be a hyper-complicated working through of the discordance between human laws being legalized lies, backed by legalized violence (which still do operate within the laws of nature, because lies CAN be backed up by violence, and therefore, frauds CAN be forced through) increasingly in conflict with greater, relatively objective realities, which can not still be successfully lied about more and more, forever and ever ...

NoControl's picture

Kipling would have something to say to that


Oh those pesky Gods of the Marketplace

Radical Marijuana's picture

It must be interesting working for the CBO, where a qualification for getting your job is to not know, or to not admit to knowning, how the system really works, because then one has no chance of being hired. After the FRAUD KINGS took control over the government of the USA, everything any government employee says, especially including the puppet politicians, has to be carefully crafted to be the bullshit that pleases those biggest bullies.

Since the first rule of ideology is that people rationalize the way that they make a living, the higher level employees of the Federal government of the USA are picked to be able to do that. Their lives depend upon deliberately ignoring that the whole thing is a fundamentally fraudulent financial accounting system.

Cognitive Dissonance to infinity and beyond! The CBO appears to be like NASA, in the sense of astronauts operating in the outerspace of frauds whose numbers are in the similar magnitudes as Lightyears!

Oops, sorry about that $600 billion ...

As a comment above said, anything less than a $trillion these days can be rounded off. When EVERYTHING is based on the privatized, legalized, counterfeiting being able to make endless "money" out of nothing, no "accounting" can be rational. However, those whose job descriptions are supposed to do that are forced into their paradoxical double bind, Catch 22, that they MUST be incompetent, or appear to be incompetent, or else they would not be hired, or would be fired, since the Fraud Kings dominate the whole system!

Totentänzerlied's picture

Is that a $1,000,000,000,000 platinum coin in my pocket or am I getting a smart-on from your posts?

PS: You could abate world hunger for a year (or do countless other ~nice~ things) for less than half of the CBO's mistake. A billion here, a billion there ... Ooh let's build a few more fighter planes.

rwe2late's picture

 Much the same could be said for employees of BP Oil, Goldman Sachs, Halliburton, CBS, Citibank et al.

Seasmoke's picture

These clowns can't even raise interest rates .000001% without the whole Ponzi collapsing.

my wag's picture



What would you rather have?

$4.6 Trillion in debt or $4.6 Trillion coming out of the GDP?

In the Bush days we had tax cuts because:

  • we were paying off the debt too quickly ( I fondly remember that)
  • we also had tax cuts because the economy was in recession and we needed to add to the GDP

I'm all for the temporary fix of a $1 Trillion Dollar Platinum coin with the eventual implementation of MMT.


F the Banksters.

are we there yet's picture

Bernankie has been scheduled to leave the fed, and he has already bbeen offered a job as a buss driver in New Deli.      /sarc off

Bohm Squad's picture

Absurd?!?!  I don't think so...


I think the trillion dollar platinum coin shows a lot of foresight by those in Washington.  The way things are going, some precious metals can easily reach that valuation!


How soon until $1T platinum coins are trading at a 2800% premium to face value?!?!


[snark off]



hooligan2009's picture

and in case you are wondering what interest rate lies behind the assumption it is 3%.

you can work this out using (presumably the same) simplifying assumptions used by the CBO. Firstly, that the balance on which the interest is payable is half the 400 billion in additional annual deficits. So the average balance for year 1 is 200 billion in deficit, year 2 it is the full 400 billion year 1 deficit plus half another 400 billion so the second year balance on which interest is payable is 600 billion.. year ten average balance is 3.8 trillion (3.6 from year 9 plus half the 400 billion year 10 deficit). you then solve (using excel goal seek) for the interest rate that results in an interest bill of 600 billion. 

the answer is 3%.

why is this significant?

well, let's see. todays treasury yield curve is 0.25% for 2 years, 0.8% for 5, 1.9% for  ten and 3.1% for 30 years. what do these have to do with the flat 3% interest rate assumption? NOTHING!!! 

put this 3% rate back in the equation against the 16.4 trillion national debt for ten years? hmmm..ok..will be about as valid as a finger in the air 3%, but let's try it over ten years.

16.4 trillion * 3% * ten years...compounded = a little over 22 trillion 

so, hmmm..what does this mean that us debt will be in ten years time.

22 trillion + the 4 trillion in extra deficit + the 600 billion on the new 4 trillion = 26.6 trillion.

GDP better grow at faster than the 3% interest rate or debt to gdp is going to look much worse than greece, ireland, spain, italy, and will be on the road to tokyo!!!

CBO must have had to guess a lot of numbers..i suspect that most of the numbers they have produced are ummm..crap? based on perfect excel spreadsheet progressions using fixed formulae? but then what else does wall street do. 

stop listening to economists and banks..their mathematicians are scoundrels, careless in the extreme and not interested in paying attention to detail!

inevitablecollapse's picture

ahhh, math - not just for MIT grads!

hooligan2009's picture

oh...and by the way...this excludes the actual base line fiscal deficits before the latest tax breaks given...worth average of 1 trillion per annum? remember those cbo numbers represent the changes to its bsseline..i cant be bothered catching up with the CBO's latest crap..i know it had outrageous assumptions on growth and employment

in-Credible Banker's picture

Dude you can figure out the GDP growth assumptions by using the first tab of the Excel.  Starting with FY 2012 they are: 


  2.04% 3.35% 6.40% 6.52% 6.05% 5.48% 4.74% 4.49% 4.32% 4.26%

 We are gonna PARTY in 2014 onwards!!!

And the interest rates on the Public Debt as follows:


1.81% 1.81% 1.90% 2.16% 2.65% 3.07% 3.42% 3.67% 3.81% 3.94%


This Excel sheet is cool!  And - yes - this is EXACTLY the way it works on Wall St....





hooligan2009's picture

you are way ahead of me...which spreadhseet are you checking out?

i tried navigating around here.. and here

( tedious!)

note here from first link:

In our August Update, we projected that, under the laws in effect at the time, budget deficits from 2013 through 2022 would total $2.3 trillion. This legislation will boost deficits over that period by an estimated $4.6 trillion (including debt service costs). CBO’s next budget projections will incorporate the effects of the legislation, as well as technical revisions and the effects of a revised economic forecast.

how on earth current 1.3 trillion deficits in just one year could be truned into just 2.3 trillion over ten years is beyond me, unless this was a fradulent attempt by a poltically influenced CBO to rig estimates to suit the pox ridden drunken sailors in the white house, congress and the senate.

even the increase ten year deficit of 6.9 trillion over ten years beggars belief given the current starting point. 690 billion a year on average? the next three years will be over 4 trillion, leaving an average of less than 400 billion for the remaining 7 years.

seems to me that is not even the CBO's responsibility but a ghost party whose numbers are  " produced by the staff of the Joint Committee on Taxation". 

these people are washington staffers who the fuck are they? can they do sums? are they told to massage numbers to a "px ridden drunken sailor" outcome?

only GDP growth numbers I can find from CBO Baseline predictions in August 2012 are starting from 2011. I am betting there are multiple sources of GDP and interest rate assumptions scattered throughout the vomit soaked bar used by the sailors. looks just like the cock up that went along with lack of co-oridnation amongst " intelligence" agencies (CIA, FBI, HS, FEMA, etc etc). 

3.6% 4.4% 4.5% 5.2% 5.4% 5.2% 4.7% 4.5% 4.4% 4.4% 4.4%
economessed's picture

Who cares about Government debt?  It's not like we're going to pay it back. 

rwe2late's picture


certainly THEY are not going to pay it back!


austerity (for us), inflation (theft), or revaluation perhaps (an "Ameripeso"-style scam)

How many elaborate swindles will be offered?

q99x2's picture

Hey Porcupine give em another dose of Weasel.

H E D G E H O G's picture


Element's picture



"... this is where one's Excel refs out ..."

Instant classic! ... I don't think they're even trying to make sense Tyler, they aren't in control and they know it. They know policy can't do a damn thing, they failed long ago. They know it's print or nothing, so intellectual justification seems like way too much work. Lame logic is a symptom.

Disenchanted's picture





CBO Admits Error

In the words of Gomer Pyle, "Surprise surprise surprise!"

katchum's picture

Indeed, if interest rates on bonds go up to 4%, which is likely. Their interest payments are going to balloon.

justsayin2u's picture

1) The con-gressional bull shit office intern that omitted interest on the debt assumed the fed would buy the debt so no interest was correct.

2) the cbso determined they might get some credibility by acting so open and "admitting" thei mistake.

3) looks like e need a 2 or 3 trillion dollar coin - but to be sure e should just go for a 100 trillion dollar coin,  yeah,  thats the ticket.


Sandmann's picture

We commented as follows: "this is where one's Excel refs out

Lovely, the US runs its government on Excel !  Need to run an Anti-Virus Package through the entire Executive and Legislature before PCs are switched on. It is the Personnel that is infected with bots not the software.  When Berlin fell in 1945 they parties in the bordellos of Friedrichstrasse waiting for the Red Army to arrive - looks like Washington has a similar approach

dcb's picture

Ok, I'm not going to disagree with how silly calculations are made. but I do disagree with the headlines if one assumes that obama wanted a 250K limit and the republicans wanted none. the limiting factor on raising taxes was the republicans not Obama

TruthBeforeAll's picture

They're just laughing at us now.

rwe2late's picture

Some appear to lack confidence that our leaders are taking enough into account.

 Our leaders surely anticipate great returns for the debt spending, especially spending for the global military and financial TBTFs.

Why, once the US controls Iranian oil and Africa's minerals,

the fruits of conquest, ahem, "liberation" should astonish everyone.

sbenard's picture

I was at a meeting with Sen. Mike Lee the day after elections. He DOES understand the magnitude of our debt and the coming interest costs, as mentioned in this article. He told us that by the end of this decade, using Obama's own budget projections, the US will be paying $1 trillion/year in interest alone on our debt. That's about half of all income tax receipts.
Sen. Lee reviewed the various options, including 1) higher taxes, which the democrats want, but $1 trillion of new taxes would cripple the economy, 2) print our way out, which would create a hyperinflationary depression, 3) a Balanced Budget amendment, which was his recommendation, but which he freely admitted couldn't get through Congress at this time, and 4) full-scale economic collapse and a rebellion of the bond markets.
Sen. Lee said option 4 is the most LIKELY to happen! In essence, he acknowledged that a calamity worthy of the Bible is a virtual certainty! Plan and prepare accordingly! Shockingly frank candor from a US Senator. At least HE gets it!