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First Glimmer of the OMB Budget Report

August 25th, 2009 . by economistmom

From the Washington Post’s Lori Montgomery, filed at 9:30 am:

The $787 billion economic stimulus package President Obama signed earlier this year is likely to cost “tens of billions of dollars” more than expected, helping to drive projections for next year’s budget deficit to $1.5 trillion, White House budget director Peter Orszag told reporters.

With unemployment climbing, costs for a variety of stimulus programs are running higher than anticipated, Orszag said, including expanded unemployment benefits, food stamps and energy grants. In an interview embargoed for release Tuesday morning, Orszag said he could not estimate the overall cost of the package, but he called Republican estimates of $900 billion “slightly high.”

Orszag’s comments came as the White House officially released new projections for the nation’s budget deficit, forecasting some good news for the current year but bad news for the future…

[G]overnment spending on social programs will continue to soar while tax collections will lag behind expectations. Instead of $1.3 trillion, the deficit in the fiscal year that starts Oct. 1 is likely to exceed $1.5 trillion, the White House said. And deficits are likely to remain elevated even after the economy recovers, averaging more than $800 billion a year through 2019, when the White House forecasts the annual gap between spending and revenue will be $917 billion.

All told, the White House predicts that the nation will have to borrow an additional $9 trillion over the next decade to finance the annual deficits, driving the accumulated national debt to nearly $23 trillion in 2019 — or 76.5 percent of gross domestic product, the highest since 1950…

That news was expected, as was this “spin” (emphasis added):

Despite the grim outlook, Orszag and Romer insisted that the stimulus package is working and said the nation’s economy would be in far worse shape without it, an opinion shared by many outside analysts. Orszag also defended the president’s call for a sweeping expansion of the nation’s health system, saying reform is essential to reining in the skyrocketing costs of Medicare and Medicaid, the health programs that are expected to drive deficits even higher in coming decades.

“I know some will say this report proves we can’t afford health reform. I think that analysis has it backwards,” Orszag said. “Given the long-term nature of that problem, we simply can’t afford to wait.”

Orszag also blamed the administration of Obama’s predecessor, George W. Bush, for the gloomy budget picture, arguing that more than half of the borrowing that will be needed over the next decade stems from Bush’s refusal to pay for expensive new policies, such as sweeping tax cuts, the war in Iraq and a new prescription drug benefit for Medicare recipients.

But what’s a nice little surprise for me is this from Peter:

As president, Obama has called for maintaining some of those policies – he would extend some of the Bush tax cuts beyond their 2010 expiration date, for example. But in light of the new deficit figures, Orszag hinted that Obama may revisit some of those decisions when he submits his next budget in February.

“Whatever their cause, the administration is very concerned about those outyear deficit figures,” Orszag said, “and getting those deficits under control is a top priority of this administration.”

:)

More soon…

10 am:  Midsession report is posted here now.  CBO’s report is now here.  Startling news is that CBO’s baseline (current law) forecast shows 10-year deficits of $7.1 trillion now; prior estimate was $4.4 trillion.  More than $2 trillion more in spending explains it…  Summary Figure on page xi of the CBO report says it all (and remember, that’s withOUT the Bush tax cuts extended)…

2 Responses to “First Glimmer of the OMB Budget Report”

  1. comment number 1 by: Brooks

    Re:
    Orszag also defended the president’s call for a sweeping expansion of the nation’s health system, saying reform is essential to reining in the skyrocketing costs of Medicare and Medicaid, the health programs that are expected to drive deficits even higher in coming decades.

    “I know some will say this report proves we can’t afford health reform. I think that analysis has it backwards,” Orszag said. “Given the long-term nature of that problem, we simply can’t afford to wait.”

    Geez, Louise — it’s amazing that the media so often let the Obama Administration get away with the same nonsensical argument that, to solve an enormous problem, we must do something that will make the problem permanently worse. (I’m assuming that even over the long-term, the cost of expansion of federal coverage will outweigh the cost-reducing effects of cost-control mechanisms, meaning higher federal spending, not lower, vs. continuation of the status quo, and I’m assuming the Obama Administration does not dispute that premise. If I’m wrong or possibly wrong on either count, someone please let me know and ideally provide a link or two)

    Every time someone from the Obama Administration trots out that talking point, reporters should ask them simply: “Are you saying that spending over the long term will be lower with the proposed reform than without it?” And if the answer is “yes”, the follow-up question should be “On what basis? Where’s the analysis and by whom?” And if the answer is “no”, the follow-up question should be: “Then why are you saying the solution to unsustainable projected spending is something that would increase that spending?”

    Hell, they can feel free to throw out my Hershey bar analogy http://economistmom.com/2009/08/talking-fiscal-policy-too-at-jackson-hole/#comment-3409

  2. comment number 2 by: Ann

    Orszag also writes: “In the meantime, we have to stop making these longer-term deficits worse – which is why the Administration supports statutory pay-as-you-go legislation, so that any new tax or entitlement initiatives are fully paid for. (If pay-go rules had been followed over the past eight years, the projected deficit would be $5 trillion lower over the next decade.)” [emphasis mine]
    OK, the projected deficit would be $5 trillion lower if OLD pay-go rules had been followed. The deficits would have been EVEN HIGHER if the Administration’s proposed paygo rules had been followed – because the Administration exempts extension of the tax cuts and AMT from paygo (the reason for the $5 trillion figure), exempts the doc fix from paygo (Congress had always paid for the doc fix), and exempts (by including in the baseline) extension of expiring mandatory provisions such as diabetes funding, Transitional Medical Assistance, and Qualified Individuals programs. The Administration’s paygo proposal also allows increased deficits to be “paid for” by promised savings 10 years in the future, which results in the same kind of higher interest costs that the Administration is whining about “inheriting.”