- The Washington Times - Friday, February 27, 2009

President Obama’s first budget fulfills a campaign promise to reduce the federal deficit to $533 billion in 2013, but it is based on an economic scenario that is far rosier than the forecasts of private economists.

The White House budget blueprint revealed Thursday showed budget deficits averaging $1.3 trillion per year from 2009 through 2011 before falling below $600 billion over the following four years.

The budget includes $250 billion for “potential additional financial stabilization efforts” during the current fiscal year. This would be on top of the $700 billion financial bailout that Congress approved last year. The 2009 budget also reflects the initial outlays and tax cuts of the $787 billion stimulus package that Congress passed and Mr. Obama signed earlier this month.

These factors, combined with a rapidly deteriorating economy, have helped to balloon the 2009 deficit to a staggering $1.75 trillion.

A deficit of that size would represent 12.3 percent of gross domestic product (GDP). That’s more than double the previous postwar record of 6 percent of GDP, which occurred in 1983.

“The administration’s economic forecast is rosier than I was expecting,” said Stan Collender, a budget expert who is a partner at Qorvis Communications, a Washington public relations firm. “They’re predicting a robust bounce-back in 2010.”

The White House budget expects the economy to decline only 1.2 percent in 2009. That compares with a 1.9 percent drop projected in February by the Blue Chip Consensus, which compiles the forecasts of more than 50 private economists. Over the next four years, the Obama administration expects the economy to expand an average of 4 percent a year, much faster than the 2.7 percent average growth rate in the Blue Chip forecast.

The administration expects the deficit will decline as stimulus programs lapse, the economy undergoes a rapid recovery and the Treasury raises taxes on high-income earners, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan budget watchdog group.

“The budget is a huge step forward in terms of transparency of the policies being pursued, but it falls far short in terms of paying for those policies and reducing the budget deficit through tough, real choices,” Ms. MacGuineas said. “We would have liked to see greater deficit reduction from Social Security and health care.”

On the tax front, the president kept quite a few campaign promises.

The budget makes permanent the “Making Work Pay” refundable tax credit of $800 for couples and $400 for individuals.

The budget extends the Bush 2001 and 2003 tax cuts for individuals earning less than $200,000 and married couples earning less than $250,000.

For those earning more than that, the 33 percent tax rate will rise to 36 percent and the 35 percent rate will rise to 39.6 percent. High-income households will also pay higher dividend and capital-gains rates and see limits placed on their itemized deductions and exemptions. These changes will increase revenues by nearly $1 trillion over 10 years, the administration estimates.

Other “revenue changes and loophole closers,” mostly directed at overseas profits of corporations and the earnings of hedge-fund managers, will generate an estimated $350 billion in tax revenue over the next decade.

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