This morning, the Congressional Budget Office and the White House Office of Management and Budget released their mid-session budget reviews, essentially updates to future revenue, spending and deficit projections based on the latest economic and policy data. They're going to be the cause of a lot of huffing and puffing -- so far, every headline I've seen has focused on how the new numbers will be a threat to the president's agenda -- but there are a few things to remember:- No surprises here. The main difference between recent OMB and CBO projections has been the OMB's use of economic assumptions from last December in their budget outlooks; CBO updated their economic assumptions in May when the real intensity of the recession was understood. The one change in OMB's projections that is causing the most kerfuffle -- the 10-year deficit through 2019 growing $2 trillion to $9.05 trillion -- is in line with numbers forecast three months ago by the CBO, whose new report has not deviated substantially from their June numbers. Anyone screaming about big changes in the long-term deficit forecasts either isn't familiar with the issues or has a political agenda (surprise!).
- It's not the most useful analytic tool. The Center for Budget and Policy Priorities' Jim Horney wrote a nice fact-sheet on how to understand these new analyses. They're not particularly useful for analyzing current policy debates except in terms of thinking of how to control long-term deficits. Running short-term deficits will have a beneficial effect on the economy, not a negative one, Horney says.
- Most of the deficit comes from past administrations. It's an easy excuse that doesn't mean the current administration doesn't have to deal with debt, but the fact is that most of this deficit came from the Bush administration. The administration wants people to realize that by 2019, the difference between all non-interest spending and revenue is .6 percent of GDP, while interest payments on debt will be 3.4 percent. But more important, most of the deficit spending the current administration has had to do comes from addressing and suffering from the financial crisis: The stimulus package, automatic stabilizers like unemployment insurance and drops in revenue thanks to overall economic decline are the major drivers of the increased long-term deficit.
- The good news is this year. Instead of being a little over $1.8 trillion, the 2009 budget deficit will be about $1.58 trillion. That's still very high -- though keep in mind that it would have been 1.19 trillion if Bush administration policies had simply continued -- but it does reflect a substantial decrease.
- Obama keeps a promise. The president said he would cut the deficit in half by 2012, and according to both CBO and OMB, he will.
-- Tim Fernholz
