Economist Aims and Fires at White House Budget

Beware the term “Saving Billions” in the new 2012 White House Budget.  The term “saving” is only possible using government accounting.  If the general public was presenting this budget, it would be called a path to bankruptcy.  But with added taxes and some lower deficit spending, it is supposed to be OK.

David Malpass of Encima Global recently noted how Washington has borrowed $45,000 for every American and over the next generation that will reach $100,000 per American.  At the same time, the government is shortening its debt maturity schedule.  Malpass noted, “Cut a billion dollars every day and it won’t be long before it amounts to real money, even by Washington’s standards.”

A fresh look at the budget from David Malpass today shows the detail of where the budget goes off track:

“The President’s budget acts as if there is no crisis in spending, deficits and debt.  His budget plans to increase statutory debt to 106% of GDP in 2021.”

• Throughout the 10-year budget window, federal debt and deficits stay impossibly large because federal spending grows to $.5.7 trillion in 2021 from $3.8 trillion this year.
• Over the 10-year budget window, the president plans to receive $39 trillion in taxes and spend $46 trillion!
• Marketable debt grows to $19 trillion from $9 trillion now.
• Statutory debt grows to $26 trillion from $14 trillion now.  Versus the assumed $24.6 trillion in GDP, that’s 106% debt-to-GDP in 2021, way above sustainable levels.

“Making matters worse, these horrendous spending, taxing, deficit and debt numbers would be much grimmer if not for rosy assumptions.”

• The budget assumes an all-out economic boom even though taxes are increased massively at the end of 2012.  Real growth climbs from a rosy 4% real in 2012 to 4.5% in 2013 and 4.2% in 2014.
• That’s over 1% faster than CBO’s and the Blue Chip forecast and well above any growth rate achieved in the Bush expansion (when the national debt and unemployment were much lower)
• The budget assumes wages and salaries grow 6.6% per year in 2013 and 2014 when inflation is assumed to be a very low 2%.  This means huge raises for workers even though unemployment is still assumed to be 6%-9%.

Malpass is formerly Bear Stearns’ chief economist and served positions under the Reagan and Bush administrations from 1984 to 1993.  His positions were Deputy Assistant Treasury Secretary for Developing Nations, Deputy Assistant Secretary of State, Republican Staff Director of Congress’s Joint Economic Committee, and Senior Analyst for Taxes and Trade at the Senate Budget Committee.

It seems that everyone has their own equation for government economics, and it seems that none ever agree.  The budget issue is not one that is going to magically go away and both sides of the aisle never really reach an agreement on what will really work.

What would it take to actually get a BALANCED BUDGET?

JON C. OGG