CBO raises estimate of 2009 stimulus law on budget deficit, lowers estimate of job effects

The Congressional Budget Office (CBO) on Wednesday said the 2009 economic stimulus law will add $7 billion more to the budget deficit than it estimated in November, and does not have quite the positive impact on job creation that CBO thought last year. CBO also said the overall effects of the American Recovery and Reinvestment Act are waning, and by 2012 will be "small."

These revised CBO estimates are sure to be highlighted by Republicans next week, when they return and renew their arguments for reduced spending in whatever budget extension bill is passed.

CBO's new report on the estimated impact of the American Recovery and Reinvestment Act said ARRA is now anticipated to increase budget deficits by $821 billion between 2009 and 2019, more than the $814 billion it estimated in November. When the law was first being considered, CBO originally estimated a $787 billion increase in the deficit.

The report said ARRA has contributed to job creation, but lowered its estimates across the board. It said in the fourth quarter of 2010, the law increased GDP by between 1.1 and 3.5 percent, down from its first estimate of a 1.4 to 4.1 percent increase.

It also estimated that ARRA lowered the unemployment rate by between 0.7 and 1.9 percentage points. This is also a downward revision from its November estimate that unemployment fell by 0.8 to 2 points due to the stimulus.

CBO said ARRA increased the number of employed people in Q4 by 1.3 to 3.5 million, but formerly said the impact was higher, between 1.4 and 3.6 million.

Similarly, it said ARRA upped the number of full-time equivalent (FTE) jobs by 1.8 to 5 million, but in November this estimate was 0.2 million higher on each end.

CBO also said the effects of ARRA are wearing off, and that the law's impact on the economy "peaked in the first half of 2010" and is now  "diminishing."

"CBO projects that the number of FTE jobs resulting from ARRA will drop sharply during 2011 — from between 1.7 million and 4.7 million in the first quarter to less than half that number in the fourth quarter (between 0.8 million and 2.5 million)."

"During 2012, CBO estimates that the impact on employment and economic output of ARRA will be small," CBO said.