Obama Budget Office Forecasts $1.47T Deficit, High Unemployment

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The Hill:



Obama budget office forecasts $1.47T deficit, high unemployment
By Walter Alarkon - 07/23/10 04:11 PM ET

“The problem now is weak growth and high unemployment rather than outright economic collapse,” budget director Peter Orszag said.

Still, the deficit would be equivalent to 10 percent of the gross domestic product, the highest level since World War II.

The Office of Management and Budget’s mid-session review, released Friday, forecast a smaller deficit and stronger economic growth than the administration’s initial budget release, but not by much.

The White House report said the unemployment rate will remain above pre-recession levels until 2015, echoing the administration’s earlier estimates. The jobless rate will average 9 percent next year, more than 8 percent in 2012 and won’t fall below 6 percent until 2015.

The administration increased its estimate of this year’s economic growth to 3.2 percent, up from 2.7 percent.

But the White House report painted a slightly gloomier-than-expected economic picture for the following two years.

The deficit forecast in 2011 increased to $1.42 trillion, up from the $1.27 estimate in February. For 2012, the deficit estimate rose to $922 billion, up from $828 billion in the previous report. The annual budget shortfall would bottom out in 2017 at $721 billion, or 3.4 percent of GDP, and begin rising again in following years.

Economists consider the maximum sustainable deficit level to be 3 percent of GDP. President Obama, whose policies wouldn't hit that target, has created a bipartisan fiscal commission to come up with a plan to cut deficits to the 3 percent of GDP level by 2015.
Rep. Paul Ryan (R-Wis.), a member of the commission, said the White House budget review is more evidence that the administration's policies will explode the debt and hurt the economy.

“The president’s job-killing economic agenda – focused on more borrowing, spending, and taxing – will keep the unemployment rate high for years to come,” Ryan said in a statement. "The American people are fed up with Washington’s push to spend money we don’t have, add to our crushing burden of debt, and evade accountability for the dismal results.” The administration revised its estimate of growth in 2011 to 3.6 percent for 2011, down from 3.8 percent, and to 4.2 percent in 2012, down from 4.3 percent.

“We are still in the basic situation, with an economy that is weaker than it would like, at least in terms of the labor market, and a medium- and long-term fiscal situation that requires attention,” said White House budget director Peter Orszag.

“While [the economy] remains weaker than we would like and the unemployment rate is higher than we would like, it is worth noting that it is substantially different than the situation we faced in late ‘08 and early ‘09,” when economists feared another depression, Orszag said.

“The problem now is weak growth and high unemployment rather than outright economic collapse,” he said.

The White House report attributed the drop in its deficit estimate to less spending on non-defense discretionary programs and unemployment and deposit insurance. The non-partisan Congressional Budget Office, which also found the deficit on track to be smaller than expected, said much of the improvement comes from increased corporate income tax revenue and bank bailout repayments.

The administration’s long-term projections were roughly unchanged.

The White House’s economic growth forecast for next year is slightly more optimistic than those of independent predictions. The Blue Chip forecast of leading economists forecast GDP to average only 3.1 percent.

White House senior economist Christina Romer noted that the administration’s 2011 and 2012 growth estimates are within the range projected by the Federal Open Market Committee, the policy arm of the Federal Reserve.(snip)