Demanding a federal budget that is fair, responsible, and meets our nation's priorities

Tuesday, February 05, 2008

Bush Weasels Out of Forecasting Another Record Deficit

Had the president used realistic assumptions about economic growth in 2008, yesterday's headlines covering the FY 2009 budget request would have been: "Record Deficit Projected." Instead, the president chose to use a somewhat optimistic GDP growth rate of 2.7 percent, which produces a higher revenue forecast and subsequently lower deficit of $410 billion. If, on the other hand, the president chose to employ the CBO's numbers (GDP growth of 1.7%), the projected deficit for 2008 would have been a jaw-dropping $426.4 billion, significantly surpassing 2004's $413 billion deficit.

There are, however, mitigating circumstances for the president's numbers. In the economic assumptions section, the analytical perspectives volume states (p171):

The [Administration's economic] assumptions are based on information available as of mid-November 2007 and are close to those of the Congressional Budget Office and a consensus of private-sector forecasters...

But that begs the question: The CBO and Blue Chip (i.e. private-sector forecasters) figures reported in the budget documents (table S-10) are from January, so why not use economic forecasts based on the same set of relevant economic data?

So what were the economic experts saying when OMB were making their assumptions for the FY 2009 budget request? In testimony before Congress on Dec. 5^th, CBO Director Peter Orszag told Congress that the Blue Chip forecast was for 2.4 percent GDP growth in 2008 and that the Federal Reserve Board were predicting growth of 1.8 to 2.5 percent. Applying the administration's economic sensitivity data (p177) - a 1 percentage point reduction in GDP growth results in a $13.8 billion drop in revenue and a $2.6 billion increase in spending - to the Fed's high-end 2.5 percent estimate, the projected deficit would be $413.3 billion in 2008 - a tie for largest nominal deficit.

A budget that predicts a record-high deficit would be terribly inconvenient for a president who wishes to be remembered as "fiscally-responsible."