The non-partisan Congressional Budget Office (CBO) dealt a bad blow to the Obama administration’s budget today, releasing projections that show the expected 10-year deficit to hit $9.3 trillion — that’s $2.3 trillion more than the White House’s budget estimated last month.
In the age of trillion-dollar financial bailouts, one might ask, what’s a couple of more trillions between friends? It means a lot to congressional Democrats, who are preparing to release their own budget outlines next week and need a large new deficit figure like they need a hole in the head.
To get an idea of the kind of heated (and rather hypocritical, coming from George W. Bush’s party) rhetoric that’s already coming out from GOPers on this issue, listen to Sen. Chuck Grassley (R-IA):
CBO’s word is the gospel. Congress and the administration need to get the message. The buck stops with the American taxpayer. People can afford only so much government spending, even for the worthiest-sounding causes.
And here’s how House Minority Leader John Boehner (R-OH) put it:
This report should serve as the wake-up call this administration needs. We simply cannot continue to mortgage our children and grandchildren’s future to pay for bigger and more costly government.
To some extent, this is nothing new. Former President Clinton took a similar hammering in 1995 from then-GOP House leader Newt Gingrich when the Congressional Budget Office (CBO) came out with numbers that differed sharply from the White House’s.
And that tale had at least a quasi-happy ending, with the nation heading into the black by the time Clinton left office. But in these recessionary times, the best President Obama can hope for is keeping his promise to halve the budget deficit over the next five years.
For a taste of how Democrats aim to counter-punch in the coming clash over the budget, check out the White House’s official talking points on the new CBO figures. TPMDC has obtained a copy, which is posted after the jump.
· After an era of irresponsibility, the President has made clear that we no longer can avoid the serious challenges facing our country and our economy. That’s why the President has made clear that the budget must: reduce the cost of health care while boosting quality and coverage, invest in education, reduce our dependence on foreign oil and invest in clean energy, and cut the deficit in half by 2013. The budget must reflect these four defining principles.
· The new CBO numbers do not change our commitment to these goals or our ability to achieve them.
· Budget projections are always subject to a high degree of uncertainty. And the main differences between our projections and CBO’s concern estimates far into the future.
o At this point last year, for example, CBO was projecting a 2009 deficit of $207 billion. It is now projecting a baseline deficit of $1.7 trillion.
o The CBO bases its 10-year deficit projection on a long-term growth rate (2.2 percent) that is significantly below what the Blue Chip (2.6 percent) and the Federal Reserve (between 2.5 and 2.7) projects. This is a main driver of the different deficit numbers for the out-years.
o And CBO itself has estimated that the margin of error around its 5-year deficit projection is about 5 percent of GDP in either direction. In other words, CBO’s confidence in its 2014 deficit number is about plus or minus $900 billion.
· We have inherited an economic and fiscal crisis unseen for generations. This budget must put us on the path to long-term economic growth and fiscal sustainability – and it will do that by taking on our big challenges head on: health care, education, clean energy, and deficit reduction.
· We’re confident that the budget resolutions that will be considered by both the House and Senate next week will reflect these objectives.
Additional details/background
· Budget projections are always subject to significant uncertainty. For example, at this point last year (in March 2008), CBO projected a deficit for 2009 of $207 billion. It is now projecting a baseline deficit of $1.7 trillion. And the new CBO baseline shows deficits over the next decade that are $1.3 trillion larger than what CBO estimated just two months ago — as of January 2009.
· The increase in projected deficits underscores both the magnitude of the economic and fiscal crisis that we’ve inherited from a long era of irresponsibility and the large swings that often occur in budget projections.
o When the President took office on January 20th of this year, his Administration inherited an economic crisis unlike any we have seen since the Great Depression. Over 4 million jobs were lost over the past 14 months, more than at any time since World War II. From December 2008 to February 2009 alone, nearly 2 million people lost their jobs.
· CBO’s larger 10-year deficit numbers are largely driven by its somewhat downcast long-term outlook for the U.S. economy, which is more pessimistic than either the Blue Chip consensus forecast or the Administration’s own projections. While CBO projects long-term real economic growth of 2.2 percent, Blue Chip projects long-term growth of 2.6 percent per year–exactly the same as the Administration.
· It is to be expected that CBO and OMB projections of long-term deficits will not perfectly align.
o CBO itself has estimated that the margin of error around its 5-year deficit projection is about 5 percent of GDP in either direction. In other words, CBO’s confidence in its 2014 deficit number is about plus or minus $900 billion.
o There are also technical differences between the CBO and OMB estimates. For instance, CBO includes the Government Sponsored Entities–Fannie Mae and Freddie Mac–as part of the federal budget, adding about $200 billion in costs compared to OMB’s estimates.
· Nevertheless, the CBO and OMB estimates both show the need for urgent action to get our economy moving again, invest for the future, and put the nation on a sustainable fiscal path.
o The Administration will cut the deficit in half by the end of the President’s first term and will take non-defense discretionary spending to the lowest level on record.
o The President’s Budget cuts deficits by $2 trillion over the next 10 years. About half of this comes from reductions in spending and the other half from rebalancing the tax code–asking families making more than $250,000 to pay their fair share and providing tax cuts to 95 percent of working families.
o These numbers also show the need to tackle the number-one fiscal challenge we face: the rising costs of health care. If the rate of growth of health care costs over the past four decades were to continue, federal spending on Medicare and Medicaid would rise from about 5 percent of GDP today to 20 percent of GDP by 2050.
· We look forward to working with the Congress to deliver a budget resolution that meets the four key conditions the President has put forward. In particular, the President has made clear that the budget must:
o Invest in health care, since rising health care costs are a burden not only for the federal government but also for families, companies, and states;
o Invest in education and in our most precious resource–our people–through a major new commitment to early childhood education, scaling up innovative new programs in our schools, and opening up the doors to college;
o Invest in clean energy technologies like wind power and solar power; advanced biofuels and fuel-efficient cars – investments that would help free us from foreign oil, create millions of jobs that pay well and can’t be outsourced, and that would make clean energy the profitable kind of energy; and
o Cut the deficit in half by 2013.
