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Mar 30

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CBO Disagrees with the President’s Budget Projections

The Congressional Budget Office (CBO) released its initial assessment of President Obama’s 2012 budget.  A more complete assessment will be released in April.  Generally, CBO concluded that the President’s deficit forecasts were too optimistic.  The CBO wrote:

CBO’s analysis of the President’s proposals is based on its own economic assumptions and estimating techniques (rather than the Administration’s) and incorporates estimates prepared by the staff of the Joint Committee on Taxation (JCT) for tax provisions.  … Compared with the Administration’s estimates, CBO’s estimates of the deficit under the President’s budget are lower for 2011 (by $220 billion) but higher for each year thereafter (by a total of $2.3 trillion over the 2012–2021 period). That disparity stems from differences in the underlying projections of what would happen under current law ($1.3 trillion) as well as from differing assessments of the effects of the President’s proposals ($1.0 trillion).

However, whether the President’s or CBO’s estimates are believed, the President’s budget provides a staggering amount of deficit spending.  Generally, economists believe that a deficit of around 3% of the total economy (GDP) is sustainable.  This is premised on continuing economic growth of approximately the same 3% rate.  However, these levels of deficit spending never come close to being achieved under the President’s 10-year forecast.  The CBO writes:

According to CBO’s projections if all of the President’s budgetary proposals were enacted, they would add $26 billion to the baseline deficit for 2011. As a result, the 2011 deficit would total $1.43 trillion, or 9.5 percent of gross domestic product (GDP).

These large deficits are driven by further spending increases.  The deficits occur despite significant tax increases.  Again, according to the CBO

The President’s policy proposals mostly affect the revenue side of the budget. … Revenues would rise relative to GDP: from 16.2 percent in 2012 to 19.3 percent in 2021. … Total outlays under the President’s budget would equal 23.6 percent of GDP in 2012, decline slightly as a share of GDP over the following two years, and then rise for the rest of the 10-year projection period. They would equal 24.2 percent of GDP in 2021. 

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2011/03/cbo-disagrees-with-the-president%e2%80%99s-budget-projections/

1 comment

  1. Loraine

    It truly is difficult to get skilled people on this subject issue, you be understood as you understand what you are dealing with! Many thanks

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