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Friday, August 05, 2005
OMB Releases Overly Optimistic Mid-Year Budget Review
The Office of Management and Budget (OMB) released its mid-year budget review on July 13 and trumpeted the lower than expected deficit projections for 2005. The self-congratulatory rhetoric coming out of the White House since has overshadowed true problems down the road.
While OMB has lowered its deficit projections for 2005 from $412 billion to $333 billion and continued to claim President Bush is well on his way to cutting the deficit in half by 2009, they continue to omit crucial aspects from their budget analysis and downplay more pressing budgetary concerns beyond 2009.
First, the recently released projections to not include a fix to the Alternative Minimum Tax (AMT) after 2005. Many analysts are crediting the expanding reach of the AMT as one of the reasons individual and corporate tax receipts increased so unexpectedly over the last six months. It is widely accepted that Congress will take action soon to restrict the number of Americans who pay the AMT. This will have a profound impact on tax receipts, causing them to fall and in turn increase deficits. For OMB to omit this aspect is misleading and irresponsible.
Secondly, as they have done repeatedly, OMB ignores the impact of current policies after the five-year window ending in 2009. According to the White House's own budget calculations released in the president's FY06 budget, if current policies are extended, deficits will begin to climb again after 2009. If these policies continue until the retirement of the baby-boomer generation about a decade later, deficits will skyrocket, reaching double digits as a percentage of GDP.
Finally, the mid-year review does not reflect changes to tax policy scheduled to be debated and enacted this fall. Congress agreed to a budget resolution earlier this year calling for $106 billion in additional unpaid-for tax cuts to be passed by year's end. This alone will wipe out the $94 billlion improvement in the deficit OMB is forecasting.
Until the White House, and to a certain extent Congress, begin to be more honest and forthright about budget projections and the future effects of changes in tax policy (beyond artificial five- or ten-year windows), budget policy in the U.S. will continue down a dangerous path.
Posted by Adam Hughes
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