Tax Analysts Blog

Goofy Responses to a Gloomy Budget

Posted on May 12, 2009

The scary Obama budget just got scarier. In February the Administration told us government debt as a percentage of gross domestic would grow from 41 percent in 2008 to 67 percent in 2019. The new projections released on May 11 put the figure at 70 percent in 2019.

That’s bad, but it will even be worse if the Administration’s economic forecast is too optimistic. And there is good reason to think it is.

The Administration has not changed its economic forecasts since February, but everybody else has. And all those other projections show an economy that is worse than was expected. As a result, Administration estimates that in February seemed a little too positive, but plausible, are now just plain way out of whack. The administration says GDP growth will be -1.2 percent in 2009. The latest Blue Chip consensus forecast is -3.0 percent.

We know you are thinking, anything’s possible. Maybe the administration is right and those Blue Chippers are too gloomy. O.K., then consider the unemployment projections. The administration says the unemployment rate will average of 8.1 percent for calendar year 2009. The Blue Chip consensus is 8.9 percent. Over the first four months of this year the unemployment rate already has averaged 8.3 percent, and nobody thinks it will be declining anytime this year.

So on its face, the Administration’s forecast is out of touch with reality. That means the economy will make the deficit numbers even bigger than the record 12.9 percent of GDP (revised from 12.3 percent in February) in the latest forecast.

Meanwhile, the Congress is looking to tax soda pop and Obama is applauding the health industry’s nebulous effort to save $2 trillion in healthcare costs. The pressure is on and things are getting weird.

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