Monday, March 23, 2009

Taking Debt To The Next Frontier - This makes Obama's budget one of the worst accounting jobs ever put forward in modern times by a new administration

Debt Star image from the blog Cheat Seeking Missiles
By INVESTOR'S BUSINESS DAILY Posted Monday, March 23, 2009
Fiscal Policy: In his budget message, the president says "the time has come to usher in a new era of responsibility."
But a new report shows the only thing his budget delivers is an unprecedented era of deficits and debt.
Late Friday, the Congressional Budget Office issued its review of the Obama budget. It's a standard exercise for the CBO, except this time the results were stunning.

According to the CBO, the Obama administration lowballed its deficit forecast by $482 billion over the next four years and $2.3 trillion over the next 10. In other words, the CBO says that 10-year deficits will be 33% higher than the president claims, should his plans get enacted.
This makes Obama's budget one of the worst accounting jobs ever put forward in modern times by a new administration.
When the CBO reviewed George W. Bush's first budget, for example, the difference between what Bush said his budget would cost and what the CBO said it would cost was minimal. Ditto its review of Clinton's first budget.
Even Reagan's first budget, which was widely panned for allegedly employing rosy scenarios to cook the numbers, differed from the CBO by just 1.2% in projected revenues and 5% in spending over the first four years.
So why the huge gap between Obama and the CBO?
Obama's team employed one of the oldest budget tricks in the books — exaggerating economic growth — to hide the true cost of his tax and spending plans. Budget forecasts are hugely sensitive to predictions about GDP growth, inflation, unemployment and interest rates. Even slight differences can have a huge impact on projected outlays and revenues.
And in his budget, Obama is positively Pollyannaish about the economy, predicting 3.2% real GDP growth next year, compared to the CBO's 2.9% and the Blue Chip consensus forecast of 1.9%. While the CBO and Blue Chip think unemployment will be 9% in 2010, Obama claims it will be only 7.9%. And so on.
Shorn of these tricks, the CBO finds that what remains is a fiscal plan that will leave the country mired in gargantuan deficits and debt.
Over the next decade, Obama's plan will produce annual deficits averaging 5.3% of the economy — compared with a post-war average of 2%. Even Obama's own budget director says that's unsustainable. Meanwhile, the national debt will hit 82.4% of GDP in 2019 under Obama's plan, according to the CBO, more than double the post-war average.
Worse, none of this includes Obama's pledge to expand health coverage. In his budget, he sets $606 billion over the next decade for health reform — through Medicare cuts and new taxes. But that's less than half the money most experts say is needed to fulfill Obama's universal health care pledge, leaving still more federal debt on the books.
Worse still, Obama would pile on all this debt just before the baby boomers start retiring in earnest, putting intense new pressures on federal deficits. Social Security's annual deficits will top $100 billion in 2020 and quickly go up from there, according to the Social Security Administration.
In response to all this, the administration says it's not giving an inch on its huge spending plans. And it goes on to dismiss the CBO as unreliable. "The CBO's projections," Obama budget director Peter Orszag wrote on the White House Web site, "are subject to a high degree of uncertainty."
It's a new era, all right. But clearly not a more responsible one.

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