Presidents have been accused of offering rosy scenarios before, but the Bush administration’s economic forecast for 2008 appears positively bullish.
Presidents have been accused of offering rosy scenarios before, but the Bush administration’s economic forecast for 2008 appears positively bullish. While many economists worry that economic growth will slow down in 2008 or, worse, turn negative, the White House forecast accompanying the fiscal 2009 budget projects an acceleration of growth this year and next. Compared to economic growth of 2.2 percent in 2007, the White House expects the economy to expand by 2.7 percent in 2008. That’s a full percentage point higher than the 2008 forecast of the Congressional Budget Office (CBO).
Yet, even with this relatively bullish forecast for 2008 and a 3 percent growth rate projected for 2009, the administration’s latest budget predicts that the unified federal budget deficit will soar from $162 billion in fiscal 2007 to $410 billion in fiscal 2008 and $407 billion in fiscal 2009. Then, as if by magic and with a whole lot of blue smoke and mirrors, the deficit would quickly evolve into a budget surplus of $48 billion three years later in fiscal 2012.
Even these $400 billion-plus unified deficits understate the potential fiscal dangers the Bush administration will be leaving for its successor. Because surpluses in the Social Security trust funds, which will average about $200 billion per year, reduce the unified budget deficit dollar for dollar, the non-Social Security budget deficit (the so-called “on-budget” deficit) will be greater than $600 billion in both 2008 and 2009.
Besides Social Security, there are numerous other trust funds currently generating sizable annual surpluses (including the retirement funds for military personnel and federal civilian workers), all of which reduce the unified budget deficit the same way Social Security surpluses do. Thus, another way of gauging the fiscal thrust of the last years of the Bush administration is to calculate the annual increases in the gross federal debt, commonly known as the national debt, which includes the borrowing of all the surpluses of all the trust funds. Mr. Bush’s final budget, for the first time ever, projects that the national debt will increase by more than $700 billion in fiscal 2008. In 2009, it will increase by more than $750 billion. In the final two budget years of the Bush administration, the debt is now projected to cumulatively increase by nearly $1.5 trillion.
Believe it or not, even these projections may underestimate the red ink. In the first place, there is the administration’s rosy scenario for the economy. If economic growth in 2008 is closer to the CBO’s forecast, then spending will be higher and revenue will be lower. If the economy actually enters a recession in 2008, as Goldman Sachs, Merrill Lynch and Morgan Stanley are all forecasting, spending will be considerably higher, revenues will be considerably lower and the resulting deficits (unified, on-budget, off-budget, etc.) will be much higher than the administration is forecasting.
In the second place, there is the serious underfunding of the war on terror for fiscal 2009. After seeking nearly $200 billion in spending authority in 2008, the administration has penciled in only $70 billion for fiscal 2009.
If spending on the war reaches $170 billion in fiscal 2009 and if the unemployment rate rises from 4.9 percent today to 7.5 percent, which would still be below the peak rate following the relatively mild 1990-91 recession, the gross federal debt could conceivably increase by more than $1 trillion in a single year — a fitting legacy for a Republican administration and Democratic-led Congress.