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Reason
Foundation...
The Rosy Scenario
System
Optimism won’t fix America’s fiscal problems.
By Peter Suderman
March 23, 2011
President Barack Obama is a budgetary optimist. When he announced his
budget proposal last month, he framed it hopefully, as a welcome return
to fiscal sanity and a path towards a better tomorrow. It was time that
Washington acted “responsibly,” he said. “After a decade of rising
deficits, this budget asks Washington to live within its means, while
at the same time investing in our future. It cuts what we can’t afford
to pay for what we cannot do without.”
If you ask me, what we could do without is misleading presidential
rhetoric on the budget. Obama’s spending plan makes minor adjustments
but leaves the country on an unsustainable debt trajectory. It’s like
swerving an inch to avoid a pebble when you’re speeding toward a
concrete wall.
Even under the rosy scenarios cooked up by the White House economic
team, the national debt is projected to rise by more than $7 trillion
over the next decade—hardly a model of fiscal responsibility. But
should we actually believe the president’s projections? Just as it’s
worth checking into a manufacturer’s product claims before swiping your
credit card, it’s worth verifying what the administration claims about
its own budget.
That’s where the Congressional Budget Office (CBO) comes in. Think of
it as Consumer Reports for economic policy. And according to a report
released by the office last week, the president’s proposal doesn’t even
meet the measly goals the president claimed.
For example, the president’s economic team argues that the White House
budget proposal would put the federal government into “primary
balance.” It’s a weasely term to begin with: It means that tax revenues
are high enough to cover the current year’s spending on things like
staff and programs. But as always, there’s a loophole. A budget that’s
in “primary balance” ignores the money spent paying interest on the
ever-rising national debt.
That’s sort of like saying that a car is in “primary working order”
because all the parts are in good shape aside from the engine. America
will spend $207 billion simply paying interest on the federal
government’s debt this year alone. By 2021, that figure is projected to
rise to $844 billion. At the same time, the CBO projects we’ll add
almost $9.5 trillion in new debt. Yet somehow this is what passes the
president’s test for “living within our means.”
Worse, according to the CBO, the president’s budget fails even that
pathetic standard. In 2018, when the government comes closest to
achieving balance, the CBO still predicts a budget that’s $177 billion
short of the president’s stated goal of “primary balance.”
The rest of the report reveals similar discrepancies. For example, the
president proposes to spend $300 billion on what’s known as the “doc
fix,” and thus avoid cutting Medicare reimbursements to physicians.
Obama’s budget says the spending will be paid for through spending
reductions, and therefore doesn’t count the spending towards the
deficit.
But what spending, exactly, will be cut in order to pay doctors? As the
CBO explains in a revealing footnote, the White House proposal doesn’t
actually say. It’s a magic asterisk, and so the CBO gives the
administration no credit. It’s a telling sign. The White House knows
precisely what it wants to spend, but not what it wants to cut.
Overall, the CBO projects that total debt will rise by $2.3 trillion
more than the president’s projections. The discrepancy is largely a
result of differing expectations for the country’s future economic
performance. The White House projects a more optimistic scenario, with
an economic engine humming far more powerfully than the CBO thinks is
likely.
It’s true, of course, that the CBO’s growth projections may well be
wrong. The CBO has been wrong before. Predictions, as they say, are
hard—especially about the future. But it’s also worth remembering that
the administration has a clear political incentive to project higher
growth and thus inflate its numbers. Indeed, when the CBO was created
in 1974, part of the intent was to provide an unbiased check on the
administration’s politically-motivated projections.
What the discrepancy means, though, is that the president’s budget is,
at best, a risky bet on brisk economic growth. His profligate spending
plan is built around a best-case scenario, like a job-hunter signing up
for a new car loan on the basis of a good feeling about a job
interview. Maybe it works out. Maybe it doesn’t. But it’s not a
responsible way to plan for the future. In the end, no amount of
optimism will pay down America’s debts.
“Families across this country understand what it takes to manage a
budget,” Obama said in February. Sadly, it’s all too clear that the
president of the United States doesn’t.
Read it with links at Reason
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