The White House Office of Management and Budget released a fact sheet about today’s budget projections:
⢠The Mid-Session Review updates the Administration’s economic forecast and budget
projections. These new forecasts are based on new data that reflect how severe the
economic downturn was in the late fall of 2008 and first half of this year. Our economic
assumptions are in line with other major forecasters that put out reports over the past few
months, and our budget projections are in line with the March projections from the
Congressional Budget Office.
⢠These new numbers show how important it was to rescue the economy with aggressive
action and invest in ways to get the economy moving again. In fact, our efforts to
stabilize the financial sector have meant that we do not need a placeholder for further
financial stabilization efforts or make more FDIC payments to protect depositors at failed
banks – which are the primary reason why the size of this year’s deficit has fallen by
almost $262 billion or about 1.7 percent of GDP.
o The 2009 deficit is now projected to be $1.58 trillion–or 11.2 percent of GDP –
down from $1.841 trillion or 12.9 percent of GDP.
⢠The out-year deficit numbers are larger than forecast in the February budget, primarily
due to changes in economic assumptions. In line with the current consensus among
professional forecasters, the Administration’s economic projections show that we have
inherited a deeper recession than understood in February.
o For example, in January 2009, data at the time suggested that the economy in the
third quarter of 2008 had declined by 0.5 percent. Revised data now suggest it
actually had declined by 2.7 percent.
o Also, certain spending programs, such as unemployment insurance and food
stamps, automatically increase and revenues automatically decline as a result of a
deeper-than-expected recession. Although this helps to ameliorate the economic
downturn by stimulating demand, it also leads to higher medium-term deficits.
Over the next 10 years, these “automatic stabilizers” and technical
adjustments are projected to add $2 trillion to the deficits, relative to our
last projection based on February’s economic assumptions.
o In addition, the failure of past administrations to follow PAYGO rules has had a
direct effect on our fiscal situation.
If we had abided by this approach during the previous
Administration, the projected 10-year deficit would be $5 trillion
smaller.
In other words, more than half of the projected deficits over the
next 10 years are directly attributable to the previous
Administration’s failure to follow the pay-as-you-go principle.
o This brings the total 10-year deficit from 2010 to 2019 to $9.051 trillion–in line
with CBO’s June projection. The out-year deficits hover in the range of 4 percent
of GDP, which is higher than desirable.
It is worth noting, however, that by 2019, the difference between non-
interest spending and revenue, which is also known as the “primary
deficit,” is only 0.6 percent of GDP.
Interest payments, which almost entirely represent the cost of the debt
accumulated by past administrations and the need to run short-run deficits
to help the economy recover from the worst downturn since the Great
Depression, are 3.4 percent of GDP by 2019.
⢠Our revised economic forecast continues to project that the recession will end in the
second half of 2009. This is the consensus of private forecasters as well: 94 percent of
those forecasters surveyed in the July Blue Chip Projection believe the recession will end
at the end of the year. While this is encouraging news, the President will not be pleased
until we start creating more jobs than we’re losing, get Americans back to work, and
build a new foundation for long-term economic growth.
⢠The Administration is very concerned about these out-year deficits. Getting the long-term
deficit trajectory under control is a top priority of the Administration. We are in the midst
of the policy process surrounding the FY 2011 budget, and that process will include
proposals to put the nation on a fiscally sustainable path.
