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Obama’s projection of deficits based on high growth rates
CBO’s forecasts less optimistic
Question of the Day
If President Obama's proposal to reduce the nation's deficit is to work, the economy is going to have to grow a lot faster than a lot of experts — including congressional scorekeepers — think is plausible.
Mr. Obama's $3.7 trillion budget blueprint assumes a sustained economic growth average of 3.8 percent over five years, with a high point of 4.4 percent real gross domestic product growth in 2013. By contrast, the Congressional Budget Office is projecting an average of 3.2 percent growth in that time span, including 3.1 percent in 2013 — more than a full percentage point lower than the administration's projection.
"We haven't had that kind of growth in several decades," Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business, said of the administration's forecasts. "These growth numbers are just ridiculous."
The White House's projected growth for 2011 starts out relatively low at 2.7 percent, lower than private forecasters who expect 3.2 percent growth this year. But starting next year, the administration predicts a faster rebound than the others, jumping to 3.6 percent in 2012 and rising to a peak of 4.4 percent in 2013, followed by 4.3 percent in 2014 and 3.8 percent in 2015.
The nonpartisan CBO likewise shows a rebound beginning at 2.7 percent in 2011, but growing at more modest levels. It forecasts 3.1 percent in both 2012 and 2013, followed by 3.5 percent in 2014 and 3.8 percent in 2015.
White House economist Austan Goolsbee last week acknowledged that the Office of Management and Budget's midterm forecast is "a bit faster" than the consensus. But he pointed out that the average five-year GDP growth coming out of a recession since World War II has been 4.2 percent, meaning that the OMB's five-year average of 3.8 percent growth is actually slower than the average recovery.
Nevertheless, the nation hasn't seen the kind of aggressive, sustained GDP growth coming out of a recession that the White House is predicting since 1982, when the economy grew on average 4.5 percent over five years. Growth rates for the two most recent recessions in 1991 and 2001 were considerably lower at 3.3 percent and 2.7 percent, respectively.
But Chad Stone, chief economist at the Center on Budget and Policy Priorities, said it doesn't make as much sense to compare the current recession with the two most recent episodes since they were not as deep, unlike the 1982 recession. Noting that both White House and congressional forecasters end up with the same level of growth, Mr. Stone said the disparity in the midterm years stems from different estimates of the economy's potential for growth as it returns to full employment.
"Each of these forecasts is reasonable. They do produce different outcomes, but it's hard to argue that one is clearly right in its assumptions and the other is clearly wrong in its assumptions," Mr. Stone said.
While the White House is betting that the recovery tracks past recoveries, CBO says this recession is unlike those past ones. CBO instead says it is tracking more like recoveries in other parts of the world after financial upheavals.
"The growth of output and, particularly, the growth of employment have been slower than during the average recovery since World War II. That subpar performance largely reflects the nature of the recession, which was triggered by a collapse in house prices and a subsequent financial crisis — events unlike anything this country has seen since the Great Depression," the CBO said in its annual Budget and Economic Outlook, released at the end of January.
Deviations in GDP growth rates could translate into billions of dollars in terms of impact on the deficit. Mr. Obama's budget proposal predicts that if the plan is enacted and if growth follows as expected, the nation will shave $1.1 trillion off its deficit over the next decade.
If the White House is off in its economic assumptions, however, that could mean higher deficits. For example, under the CBO's projections, the deficit is $1.5 trillion higher than in Mr. Obama's budget, according to an analysis by the Committee for a Responsible Federal Budget.
Brian Riedl, budget analyst at the Heritage Foundation, said using optimistic economic assumptions is just one of the ways the Obama budget looks rosy. He said the administration also counts on new taxes to finance transportation and assumes spending cuts for Medicare payments and waste, fraud and abuse, but never gives details.
Congress is required to use CBO's calculations when it writes its own budget, and CBO's projections will look a lot more grim than Mr. Obama's — to the tune of more than $2 trillion in extra deficits.
"When CBO estimates the president's budget, they're likely to show substantially larger budget deficits, not only because of the economic assumptions, but also because the president's included multiple gimmicks the CBO will not incorporate into their budget," Mr. Riedl said.
• Stephen Dinan contributed to this article.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
About the Author
Kara Rowland, White House reporter for The Washington Times, is a D.C.-area native. She graduated from the University of Virginia, where she studied American government and spent nearly all her waking hours working as managing editor of the Cavalier Daily, UVa.’s student newspaper.
Her interest in political reporting was piqued by an internship at Roll Call the summer before her ...
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