February 05, 2008
How to balance the Federal budget, Bush style, Redux
A year ago, I observed that the Bush Administration was projecting a balanced budget eventually, by assuming away expenditures. We're in for a replay.
Bush budget plan likely underestimates U.S. deficit
Mon Feb 4, 2008 3:19pm EST
By David Lawder - Analysis
WASHINGTON (Reuters) - U.S. budget deficits in the next few years will likely exceed the near-record gaps forecast in the White House budget proposal issued on Monday, which assumes much stronger economic growth than most economists expect and excludes crucial Iraq war funding and tax changes.
Economists say the White House forecast of 2.7 percent economic growth in 2008, which was released in November but which underlies the deficit projections, is too rosy given deteriorating conditions since then -- meaning near-term tax revenues are likely to disappoint as well.
"The odds are that the economy will grow less than the administration projects in 2008 and 2009, and that the deficits will be significantly larger than they project for a number of years," said Douglas Elmendorf, an economist at the Brookings Institution in Washington.
The nonpartisan Congressional Budget Office estimates growth this year at a paltry 1.7 percent, while the Blue Chip survey of private economists in January showed a consensus of 2.2 percent growth -- a projection likely to be marked down when the next survey is released on February 10.
President George W. Bush's final budget blueprint sees the deficit more than doubling in the current fiscal year to $410 billion, due partly to an expected $125 billion cost for fiscal stimulus measures aimed at keeping the economy from falling into recession.
The White House, which assumes passage of the president's budget proposals, sees the deficit holding at around that level -- $407 billion -- in fiscal 2009, but then shrinking markedly in subsequent years, reaching a $48 billion surplus in 2012.
But Bush's fiscal 2009 budget only includes $70 billion in spending for wars in Iraq and Afghanistan, and doesn't include any funding beyond that. Due to the "fluid situation on the ground in Iraq," White House budget director Jim Nussle said the administration needs to wait for a new progress report from the U.S. commander in Iraq before determining funding levels.
"I think the main deceptions in the budget are the same ones we've seen for five years. The costs for Iraq and Afghanistan has consistently been $200 billion a year, but they've only put aside $70 billion," said Chris Edwards, economist at the libertarian Cato Institute. "The war will cost $100 (billion) to $150 billion a year until 2012 or so."
Coupled with unrealistic growth forecasts, the additional war costs mean the fiscal 2008 deficit will likely top $500 billion, he said.
In addition, proposed savings of $34 billion from health care programs and discretionary domestic spending will be nearly impossible to achieve from a Democrat-controlled Congress during an election year.
The motto for the new budget is "Managing for Results". I'll let the reader decide what kind of results will be the end result of the Administration's managing...
Posted by Menzie Chinn at February 5, 2008 12:04 AMdigg this | reddit
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» February 5, 2008 from PrefBlog
The roar erupts from the angry crowds: when is PrefBlog going to get any work done? Again today, general commentary will be greatly foreshortened. In my defence, I can only say that I was able to post about Seniority of BAs, ruin Kaspu’s day with... [Read More]
Tracked on February 5, 2008 06:45 PM
I'm looking forward to revisiting some of the discussion in some previous posts ,  about persistently "surging" tax receipts, ushering in a new era.
Now, now, no need to gloat.
We'll see about that 2.7% growth. I've been hearing that consensus for Q3 and Q4 '08 as fairly bullish. But it will be hard to make up for 0% and 1% growth in Q1 and Q2.
As for the deficit, I'm going to cry "uncle". $150B+ for "stimulus" is just WAAAAY too much to make up for anytime soon.
Posted by: Buzzcut at February 5, 2008 06:26 AM
CoRev has experienced technical difficulties posting on this weblog, so he graciously writes:
[Y]ou were right I was wrong. Like buzzcut, we have to concede the point. We (at least I) hoped this business cycle would be longer and higher and it was not.
Posted by: Menzie Chinn at February 5, 2008 01:14 PM
I've met a few Republicans in my time and none of them struck me as people who liked to be mislead by their government.
Posted by: E. Poole at February 5, 2008 02:43 PM
You leave out another unrealistic point-- the budget also assumes that the AMT won't be further patched in future years and includes extra revenues from that. If it's unrealistic to include and assume spending cuts that Congress won't make, it's unrealistic to assume that the AMT won't get patched again.
I understand why the CBO budget baseline operates the way it does, but there's no reason for the OMB to be the same.
Posted by: John Thacker at February 6, 2008 09:01 PM