May 1, 2007 / 3:16 PM / 12 years ago

Think tank doubts lower US budget deficit forecasts

NEW YORK, May 1 (Reuters) - The U.S. government will sink deeper into debt — not reduce the deficit — if the economy is to skirt a downturn, according to a New York State think tank.

Economists at the Levy Economics Institute at Bard College say the Congressional Budget Office’s projections for a gradually smaller budget deficit are based on overly optimistic assumptions that have little chance of coming about.

“The CBO’s assumptions, viewed in the context of other likely events, are wildly implausible if viewed as predictions,” economists Wynne Godley, Dimitri Papadimitriou and Gennaro Zezza wrote in a policy paper.

The Treasury Department said on Monday it expects to pay down $145 billion in debt in the second quarter, the largest such repayment in six years, citing strong tax receipts and high demand for state and local government securities.

Even before the announcement, the CBO had forecast President George W. Bush’s fiscal 2008 budget proposal would bring federal books roughly into balance by 2012.

The economists argue that barring a massive — and unlikely — further depreciation of the dollar, the only thing that will keep the economy growing at the solid clip forecast by CBO is more spending.

“The other major alternative potentially available to keep the expansion on track is a significant rise in the government deficit, entirely contrary to the present intention of the Bush administration and the Democratic Congress,” the Levy economists said.

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