On August 25, 2009, the White House Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) each released updated reviews of the U.S. fiscal situation. Both reveal a disturbing and worsening fiscal outlook with deficits, debt, spending, and unemployment all increasing faster than expected while revenues and GDP decrease at a greater rate. The following is a brief analysis of these re-estimates. Please note that the CBO estimates are based on current law while the OMB numbers assume the enactment of the President's policy proposals.
OMB: OMB estimates that the ten-year deficit will reach $9.05 trillion-$1.94 trillion or 27 percent more than their original estimate of $7.1 trillion. OMB also estimates a 2009 deficit of $1.58 trillion, a decrease of approximately $261 billion from the $1.84 trillion deficit predicted earlier this year. However, this "decrease" merely reflects the White House's decision to jettison a $250 billion placeholder in their budget that was set aside for another potential bank bailout the President now considers too contentious to pass Congress. The reduction does not represent any real savings.
CBO: CBO's ten-year deficit estimate grew by $2.7 trillion in the August baseline, from $4.4 trillion to $7.1 trillion. CBO has a lower overall deficit number than OMB, reflecting CBO's assumption that certain changes scheduled under current law, such as the expiration of 2001 and 2003 middle class tax cuts, will occur. However, CBO's estimated deficit grew by an astounding 61 percent in the August baseline because of Democrat policies passed since the last assessment (such as the "stimulus," the omnibus, etc.).
OMB: OMB estimates that the debt held by the public will reach $17.49 trillion in 2019 or 75.7 percent of GDP. This estimate is $1.46 trillion or 9 percent above the May OMB estimate, which said the 2019 public debt would be $16 trillion.
CBO: CBO estimates that the public debt will increase to $14.32 trillion by 2019. The estimate is an increase of $2.5 trillion or 21 percent above CBO's previous baseline estimate.
Less Economic Growth
OMB: OMB forecasts a much slower climb out of the recession than originally predicted and estimates that GDP will increase by only 2 percent in 2010, compared to 3.2 percent growth estimated in May. It now predicts 3.1 percent average economic growth from 2014 to 2019.
CBO: As in the spring, CBO's predictions for ten-year GDP are much less optimistic than OMB's. CBO predicts economic growth of 1.7 percent in 2010, and an average economic growth rate of 2.5 percent from 2014 to 2019.
OMB: OMB estimates that unemployment will be significantly higher than the Administration projected earlier. Unemployment will average 9.3 percent in 2009, up from 8.1 percent that was estimated in the President's budget. OMB predicts that unemployment will peak at 9.8 percent in 2010. Following its peak, OMB says that unemployment will begin to slowly retract, eventually falling to a low of 5.2 percent in 2019. These new predictions differ greatly from OMB's original budget estimates which forecasted that unemployment would stay at 8.1 percent or below in 2009 and drop to 5.2 percent by 2013 with the Democrats "stimulus."
CBO: The August baseline also shows a worsening jobs situation and assumes that 2009 unemployment will average 9.3 percent. CBO predicts that unemployment will continue to climb in 2010, reaching an average of 10.2 percent for next year. In March, CBO estimated much lower numbers, stating that unemployment for 2009 would be 8.8 percent and would peak at an average of 9 percent in 2010.
OMB: OMB predicts that federal receipts will be $83 billion lower than estimated in the current fiscal year, and that over ten years, revenues will fall $791 billion or 2.2 percent below the President's May estimate.
CBO: CBO's estimate shows $86 billion less in federal revenues than the previous baseline predicted for 2009. Over ten years, CBO estimates that revenues will total $34.17 trillion, which is $370 billion or 1 percent less than the previous baseline forecast.
OMB: OMB forecasts that federal spending over the next ten years will increase by $1.15 trillion or 2.7 percent above their original estimate. The original budget estimated that the federal government would spend $42.15 trillion over the next ten years. Even with a $345 billion drop in the spending estimate for 2009, the ten year spending number has now risen to $43.31 trillion.
CBO: CBO forecasts that spending over the next ten years will increase by $2.32 trillion or 6 percent above its last baseline. This increase does not include the President's proposed $1 trillion government takeover of health care.