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Obama's Budget Plan Is a Leap of Faith on Growth

Tuesday, 02 Feb 2010 09:29 AM

 

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President Barack Obama's proposed budget relies on a commission without teeth to help his administration wrestle the deficit out of the danger zone. It forecasts stronger economic growth than most economists expect and calls on Congress to cut programs that lawmakers cherish.

All budgets from the White House are leaps of faith of some sort. This one is no exception.

The economic forecasts used in setting spending priorities are in line with independent expectations for now. After that, though, the administration's projections appear ever more fanciful.

A look at some budget assumptions and how they compare with the facts and political realities:

BUDGET: Forecasts four years of growth of 4 percent or more and unemployment dropping to 8.2 percent in 2012.

THE FACTS: No one knows what will happen, but the administration's projections are rosier than private economists expect.

For 2010, the administration is projecting that the overall economy, as measured by the gross domestic product, will grow at an annual rate of 3 percent, when measured from the fourth quarter of last year. That is very close to the 2.9 percent GDP growth forecast from economists surveyed by Blue Chip Economic Indicators.

However, the administration is projecting that growth in 2011 will jump to 4.3 percent and remain at 4 percent-plus for three years, a scenario that is much stronger than the forecasts of private analysts. The Blue Chip consensus is for growth to be more than a percentage point lower in 2011 at around 3.1 percent.

Likewise, the administration's projection that unemployment, currently 10 percent, will end the year around 9.8 percent is in line with the outlook of most private economists. Many are looking for the jobless rate to peak at about 10.5 percent this summer and then gradually decline as the recovery gains strength.

However, for next year, the administration is projecting the jobless rate will drop to an average of 9.2 percent and will average 8.2 percent in 2012, the presidential election year. Many private economists don't believe the jobless rate will improve that quickly, given all the headwinds now facing the economy.

Stronger economic growth and more people working translates into more revenues for the government and less spending in such areas as unemployment insurance and thus a smaller budget deficit. However, private economists reviewing the administration's forecasts said the actual track for the economy is likely to be more sluggish, making future deficits, already expected to be huge, even larger.

"The administration's economic forecast is highly optimistic," said David Wyss, chief economist at Standard & Poor's in New York. "This is going to be a half-speed recovery. Usually you get a bigger kick coming out of such a deep recession, but we think there are just too many headwinds out there."

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BUDGET: Save some $20 billion by cutting programs.

THE FACTS: Congress typically disregards most items on a president's budget-cutting wish list and puts money into the programs anyway. Several dozen of the programs Obama proposes cutting in the new budget were marked for elimination in his budget a year ago.

Obama actually got more than usual on this front in 2009, persuading Congress to go along with more than $6 billion in cuts out of the $17 billion he sought. But he achieved those savings from just a few big-ticket defense and related programs, such as canceling production of the F-22 fighter.

This time, there are fewer massively expensive programs on the list, and it will be an uphill battle trying to get lawmakers to back off on nickel-and-dime spending important to their states.

Although supporting major military systems this time, Obama does want to save $2.5 billion by stopping purchases of the C-17 cargo plane.

The Pentagon tried to cease production of the aircraft before, but lawmakers restored the money to save jobs in their states.

Obama also wants to save $115 million this year and $1.2 billion over 10 years by eliminating payments to states and Indian tribes that have completed cleanup of abandoned coal mines. His reasoning: The job has been finished, so the money should stop.

But he was rebuffed when he tried the same thing last year. Lawmakers from mining states say the money is needed to create jobs and to clean up other mines, and already a half dozen from both parties are vowing to keep the program intact.

Obama also wants to eliminate the B.J. Stupak Olympic scholarship, a $1 million annual program named for the late son of Rep. Bart Stupak, D-Mich.

Stupak was a leader of moderate Democrats who won a battle to include language forbidding money in the House health care bill to help pay for abortions, a provision that angered liberals and has been a major stumbling block in completing the legislation. Former President George W. Bush also tried to cut the scholarship, which helps an Olympic training center in Stupak's northern Michigan district.

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BUDGET: Counts on a presidential commission to help the administration reduce the deficit to 3 percent of the overall economy, a level that private economists generally believe is manageable. That would be a significant improvement from this year's projected record-breaking $1.56 trillion deficit, which would equal 10.6 percent of GDP.

THE FACTS: The commission has yet to be appointed and there's no sure path to having its recommendations considered by Congress.

Even with its proposed partial budget freeze and tax increases on the wealthy, the administration would not achieve its goal of getting the deficit down to 3 percent of GDP, only reaching 3.9 percent by 2015. Achieving that last one percentage point of deficit reduction is where the commission is supposed to come in.

The trouble is that the idea of establishing the commission by law failed last week when senators in both parties opposed it. Republicans expressed worry the commission would open the door to tax increases, even though most budget experts say it will probably take a combination of tax increases and cuts in the government's big spending entitlement programs such as Medicare and Social Security to get the deficit under control.

Some Republicans are urging a boycott of the panel that will result. Even if Obama manages to get Republicans to serve, it is not at all clear the commission's recommendations, due at the end of this year, would be voted on in Congress.

Democratic leaders of both the House and Senate have committed to such a vote, although it won't come until after the November elections.

But under the agreement brokered by Vice President Joe Biden, the commission's proposals would have to first win support of 60 senators to guarantee the effort would not be blocked by a filibuster.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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