As far as the eye can see
Whoa Nelly, look at that national debt. It’s at $11 trillion now and today, the White House and the Congressional Budget Office said it’ll almost double in the next decade. But the two forecasts had different results on the ratio of revenues to expenditures. Let’s figure out why.
The White House Office of Management and Budget (OMB) pegged the deficit at $9 trillion by 2019. The CBO’s estimate was $7 trillion. The difference? The CBO assumed higher tax revenues. Is the CBO assuming higher tax rates or just more revenue as the economy improves at the current rates? Marketplace’s Washington bureau chief John Dimsdale just gave me the answer:
By law CBO has to use current law in its forecasting. That means CBO assumes the Bush tax cuts will expire next year and so will the patch that excludes tens (hundreds?) of thousands of Americans from the Alternative Minimum Tax. So CBO is assuming higher tax rates. OMB, by contrast, can make the politically astute assumption that Congress won’t let ALL the Bush tax cuts expire … and won’t subject so many middle class Americans to the Alternative Minimum Tax. That reduces the revenues in the OMB projections.
So, basically, the White House is saying, hint, hint, we’re going to keep our promise of not raising taxes on households earning less than $250,000 a year. But that might be difficult when you consider how wrong these projections can be. The White House’s debt projection is almost $2 trillion more than it was in May. White House budget director Peter Orzag said the recession has been deeper than originally forecast.
Now, extrapolate that judgment error over a decade, and you can see how difficult it is to put any kind of faith in these projections. For example, when President Clinton left office, he was was projecting surpluses as far as the eye could see. In fact, the government had a surplus of $127 billion. Since then, we’ve had two presidents from different parties, 9/11, two wars, the dot.com bust, the housing meltdown, Wall Street’s collapse (and rescue) and now stimulus packages. I don’t recall any of those being in the last Clinton budget projection.
The current White House is also telling us that the deficit will be reduced dramatically in the coming years because that’s a priority. More from Bloomberg:
Orszag defended the trillion-dollar deficits during a recession and said the government must reduce them as the economy recovers.
“The first step is to stop making those deficits worse” by enforcing pay-as-you-go legislation so that “any new tax or entitlement” programs are paid for, and by adopting an overall of the U.S. health-care system that doesn’t add to the deficit, he said.
“I know there are going to be some who say this report proves we can’t afford health reform,” Orszag said. “I think that has it backwards,” because savings must be squeezed from the system.
And on cue:
“It throws a wrench in health-care reforms,” Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, said in an interview before the report was released. “No matter the specific numbers, they’re a constant reminder that we’re in bad, bad shape.”
Yeah, no matter the specific numbers. They aren’t reliable anyway. And I haven’t even gotten to the accounting issues. Read more about that here.
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