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Obama’s Budget Unicorn

John on April 29, 2009 at 8:39 am

Back in February, Obama said:

“We can’t generate sustained growth without getting our deficits under control.”

This was all part of the big roll out of his plan to cut the deficit in half in four years. That formulation — cut the deficit in half in four years — was a crafty one. It assumed that the listener already knew the deficit had more than doubled in a matter of months. So when Obama promised to cut the deficit in half, he was really promising to cut it to slightly more than what it had been the previous year and to a little more than double what it was in 2007.

This chart is helpful. Compare 2008 to the White House projected numbers for 2013. That’s cutting the deficit in half in Obama speak.

deficits

As it turns out, even that carefully worded promise isn’t going to happen. The Wall Street Journal notes that Obama’s forecasts rely on some terrifically unrealistic projections:

After contracting at a 1.2% rate in 2009, a more modest drop than the Congressional Budget Office and Blue Chip Consensus forecasts assume, the White House sees growth domestic product growth snapping back by 3.2% next year and then 4% or higher the three years after that.

In reality, the economy contracted 6.3 percent last quarter and new numbers out today show a 6.1 contraction this quarter:

The economy shrank at a worse-than-expected 6.1 percent pace at the start of this year as sharp cutbacks by businesses and the biggest drop in U.S. exports in 40 years overwhelmed a rebound in consumer spending.

The Commerce Department’s report dashed hopes that the recession’s grip on the country loosened in the first quarter. Economists surveyed by Thomson Reuters expected a 5 percent annualized decline.

So where Obama’s budget predicted 1.2% contraction this year, economists who are not part of the “reality-based community” predict a 5% decline. But of course the actual numbers are closer to 6.2%. A 5% difference between reality and projection goes well beyond “rosy scenario.” This is Obama-riding-an-economic-unicorn territory.

obama-unicorn2

Even as deficits are rising, tax revenues — both individual and corporate — are off sharply forcing Treasury into further debt:

“Tax receipts are just collapsing,” said Chris Ahrens, head of interest-rate strategy at UBS Securities LLC in Stamford, Connecticut, one of 16 primary dealers required to bid at Treasury auctions. The need to sell more debt “is a big issue in the Treasury market and it is ongoing. The surging budget deficit is the primary cause.”

[...]

Rising unemployment and lower consumer spending helped drag income-tax receipts from individuals and small businesses down 15 percent in fiscal 2009 through March, compared with a year earlier. Data due in May will likely show that the recession curbed estimated-tax payments in the first quarter, while the drop in financial markets caused capital gains to shrink.

[...]

The federal government is also losing revenue from corporate tax receipts, which have fallen 57 percent from the first six months of fiscal 2008. Not only are companies earning less — and paying less in taxes — they are getting more in refunds.

In short, this level of spending is putting America into a crippling level of debt. In response, last week Obama asked his cabinet to find $100 million they could cut from the budget. Heritage has a helpful graph on this as well:

heritage-spending

We really are in trouble here. Are there any real reporters out there who might be willing to take a break from celebrating Obama’s first 100 days and ask him how he intends to pay for all of this? To quote Obama again:

Without significant change to steer away from ever-expanding deficits and debt, we are on an unsustainable course.

Sounds great, but what are you actually going to do about it in light of the current economic numbers?

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Category: Energy & Economy |

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