OMB Plays Three Card Monte With Deficit Numbers | Citizens Against Government Waste

OMB Plays Three Card Monte With Deficit Numbers

The WasteWatcher

As a rite of August when the nation’s capital moves slowly, official Washington plays an interesting game of re-estimating the budget deficit.  It is known as the Mid-Session Budget Review and both the Congressional Budget Office (CBO) and the White House Office of Management and Budget (OMB) take part.  While both review the state of the federal budget and outlook for projected deficits over the next 10 years, they issue very different reports.

Each agency has flexibility in determining its underlying economic assumptions, such as economic growth, interest rates, inflation and unemployment.  Playing with these figures can alter the deficit forecast significantly.  Beyond that, CBO is constrained by law – called baseline budgeting – only to assume that taxes and spending will continue as they exist under current law.  This means that spending will continue at the present level, plus inflation.  Revenues can only change based upon the existing law.  OMB always attempts to put the current administration in the best light and it has been known to massage the assumptions of policy and legislative initiatives. 

One thing is clear.  Both the new OMB and CBO reports issued this month show the total amount of deficit spending rising by an enormous amount.  OMB’s new estimate has climbed by $2 trillion over the next 10 years to more than $9 trillion.  CBO’s new estimate has risen is $2.7 trillion higher over the next 10 years to more than $7.1 trillion.  However, CBO assumes that all of the middle-class tax cuts will be allowed to expire at the end of the next fiscal year, including the alternative minimum tax and the death tax, among others.  OMB is assuming those taxes will not be allowed to rise dramatically as they do under current law.

OMB’s report, which emerged on August 25 after much anticipation, is still low-balling its numbers; for one thing, White House budget officials are assuming more than $600 billion in new revenues from their global warming cap-and-trade proposal.  While it has become increasingly unlikely that this legislation will be enacted, its passage is irrelevant since Congress had already decided to give away almost all of the emissions permits rather than auction them off for revenue.  OMB also assumes another $200 billion in new taxes on international businesses, yet Congress has shown little appetite for passing these measures into law.

Furthermore, the Obama administration continues to believe that it will enact a “deficit neutral” healthcare reform plan, which includes more than $620 billion in Medicare and Medicaid cuts.  OMB claims these as savings despite the fact that every healthcare reform proposal moving through Congress dramatically increases spending, while providing few offsets.  In fact, CBO has scored the House healthcare bill (H.R. 3200), as introduced, costing $1 trillion and adding $239 billion to the deficit over 10 years.  However, in order to pass the legislation out of committee, it was amended to reflect backroom deals that were made to buy votes.  Those alterations will add another $600 billion to the price tag, according to the website of House Energy and Commerce Committee’s Ranking Member Joe Barton (R-Texas), none of which is offset.

There are other suspect items included in OMB’s economic assumptions.  For example, the Treasury Department and the Federal Reserve have together created or printed more than $9 trillion.  Despite this vast and rapid increase in the money supply, OMB envisions no inflationary effect.  OMB assumes that inflation will top out around 2 percent and interest rates on all of this borrowed debt will remain low.

This is an enormous amount of money for the markets to absorb.  Last year, the Treasury Department auctioned off $5.5 trillion of debt, both maturing and new debt.  This year that figure rises to $8 trillion.  To put that number into perspective, Treasury must sell more than $250,000 in securities every second this year.

Because there is so much debt, buyers who fear inflation might demand higher interest rates, and the deficit will almost certainly balloon even faster.

The Obama administration is manipulating public perceptions about the budget in several ways;  his budget officials continue to use self-serving assumptions when making future budget projections while the White House is still trying to blame many of the economy’s woes on President Bush.  However, President Obama voted for the $700 billion Troubled Asset Relief Program (TARP) while he was in the Senate and since entering the White House passed a $787 stimulus package, oversaw an expansion of the State Children’s Health Insurance Program, released the second tranche of a $700 billion in TARP funds, and signed a $410 billion omnibus appropriations bill.  His hands are not as clean as he wants you to believe.

Roger Morse, Visiting Fellow

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