President Obama keeps saying that his 10-year budget will cut the federal deficit in half.
Since that’s counter-intuitive — given the amount of new spending he has planned, I got curious …
Here are they key numbers:
From 1969 to 2008, the Federal deficit was about 3% of GDP. That’s about $350 billion per year.
The deficit ballooned during the recent spending and bailout spree to about 12% of GDP. That’s about $1.9 trillion.
The CBO projects that the Obama budget — as proposed — would have a 10 year out deficit (in 2119) that’s roughly $1.2 trillion — 6% of GDP. Team O claims that the out year deficit will be “only” $750 billion — about 5.5% of GDP.
Bottom line: Big O is technically correct if he measures from the 2008-2009 multi-billion dollar spending extravaganza and heavy rounds the numbers. The deficit goes from $1.9 trillion in 2009 to $1.2 trillion (or $750 billion if you buy Team O’s numbers) — as a percentage of GDP, it goes from 12% to 6%. That’s about halving the deficit between 2009 and 2019.
More important, but omitted in the President’s remarks: Team O’s out year deficit will be roughly twice the 1969-2008 percentage of GDP and his out year deficit will be roughly 3 times the recent average deficit (in dollars)
Maybe not a lie … but very misleading … don’t you think?
Spend, spend, spend …
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http://blog.heritage.org/2009/03/24/bush-deficit-vs-obama-deficit-in-pictures/
CBO Budget Analysis:
http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf
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March 30, 2009 at 8:34 am |
Glad to see Professor Homa bringing up this point. Since I first heard the president mention cutting the budget in half it has amazed me that he hasn’t been challenged on this statement. The 2008 budget deficit was $459 billion and Obama’s lowest budget is $658 billion, not half as I was anticipating when he made the claim.
If I learned anything from living in Washington is that when a politician starts mentioning numbers you need to dig through them to ensure they aren’t blowing smoke. Or at least you need to understand the direction in which they are blowing smoke.
One additional note about CBO estimates. Although this is a bipartisan congressional committee I tend to not trust their numbers primarily because they appear to assume that changing tax rates does not influence GDP or earnings behavior. (eg if you increase tax rates from 35 to 70% it will not affect income) So if the CBO is finding major issues with the president’s projections then we are really in dire straits.
March 30, 2009 at 10:30 am |
Misleading indeed.
a) The government should recoup a portion of the TARP and AIG funds (assuming MiniTreas isn’t allowed to impose the full slate of draconian financial regulations floated last week), and Treasury is enjoying moderate returns on those funds, so the current deficit will not impact the debt in the same way the proposed budget’s spending will. As those funds are paid back, the national debt will go down by some amount.
b) Pres. Obama’s real liberties are in the GDP forecasts behind the budget. He waves away a “small” disagreement over growth rates – 2.6% vs. 2.2%. That’s not trivial; the White House is saying the economy will grow 18% faster than the CBO projects in out years. Additionally, the forecasted growth numbers are an order of magnitude larger for expected growth through 2012. It’s hard to imagine a growth scenario like that if the private sector is dealing with sorting out the current financial crisis, adjusting to new financial regulation (don’t forget IFRS…), card check, carbon taxes, a reformed medical system and significantly increased political risks to anyone who manages to beat the odds and make a profit. The Democrats in the White House and on Capital Hill are not creating an environment conducive to the economic growth required to fulfill this promise.
I sure am glad we resotred transparency here by putting funding for the wars in Iraq and Afganistan “on budget” – that was a huge acomplishment…
April 15, 2009 at 7:27 am |
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