It faces possible further erosion through new spending initiatives brewing in Congress and the White House. Economists are wondering whether the decline in projections is largely a temporary consequence caused mostly by the slowing economy, or the beginning of a fundamental reversal in the direction of the government's finances. For now, surplus projections remain huge, but are rapidly shrinking. And revised forecasts from the Congressional Budget scheduled for release next week are expected to show even larger downward revisions. And both generally assume that Congress will stick to pre-set spending limits a shaky prospect.
Budget forecasts are notoriously unreliable, especially around economic turning points.
The nature of the slump in the US is unknown. In the same way that unexpected economic developments over the past five years led to gross underestimating of tax revenue, the abrupt reversal of the economy is likely to lead to serious overestimating. It also reflected a surge in productivity and economic growth, increasing inequality in terms of income gains, a rise in profits as a share of the economy and a surge in capital gains and income tax revenue generated by the soaring equity market. However, most of these factors are in the process of reversing course or at least, their continuation is in doubt. The White House has assumed, at least publicly, a resumption in normal US growth next year and little change to the cumulative 10-year budget surplus.