Mr. Obama’s Missing $1 Trillion

The Congressional Budget Office said the national debt will be rise by $9.8 trillion by 2020. The figure is $1.2 trillion higher than White House estimates, which may put a new sword into the hands of opponents of the current budget.

The CBO estimates are lower than the President’s on both the receipt and expense sides of the ledger. The agency’s numbers assume that current government policies will remain in effect and that discretionary spending will rise at the rate of inflation.

The differences between the White House estimates and those of the CBO are profound when the ten years are added up. US debt held by the public is 67% of GDP under the President’s forecast, but 90% when the CBO estimates are used as the basis of calculations.

The biggest difference between the two sets of projections is that under the President’s plan spending accelerates in the latter part of the decade. The White House plan anticipates expenditures which are $2.3 trillion greater than the estimate offered by the CBO.

Forecasts of financial events that will happen if five or ten years are almost certain to be incorrect. The White House is more optimistic than the CBO about federal receipts which means that it is more hopeful about the rate at which GDP will improve over the next ten years. The President assumes gross domestic product will move up by more than 5% from 2012 to 2014. Some economists believe that 2010 GDP growth will be worse than the President’s forecast of 3.2%. For each month that growth is below projection the deficit it likely to grow–if spending plans stay in place. That almost certainly increases the national debt.

While the debate about the budget in Congress may seem to do with the size of the President’s spending programs for the federal government and the size of the healthcare reform plan, that is only half the story. The half that is largely ignored is the set of estimates about how quickly the economy will grow from 2012 to 2020, which are figures that can only be guessed at. The President’s guess is obviously optimistic. If he is wrong, the price will be high enough that America may not be able to meet its debt obligations with any ease by the end of the decade. That could mean default on US sovereign debt or a period of belt-tightening by the government for several years after 2020. That austerity may be greater than the American public has seen in decades.

Douglas A. McIntyre