Taking Debt To The Next Frontier

From Ibdeditorials.com

So why the huge gap between Obama and the CBO?

Obama's team employed one of the oldest budget tricks in the books — exaggerating economic growth — to hide the true cost of his tax and spending plans. Budget forecasts are hugely sensitive to predictions about GDP growth, inflation, unemployment and interest rates. Even slight differences can have a huge impact on projected outlays and revenues.

And in his budget, Obama is positively Pollyannaish about the economy, predicting 3.2% real GDP growth next year, compared to the CBO's 2.9% and the Blue Chip consensus forecast of 1.9%. While the CBO and Blue Chip think unemployment will be 9% in 2010, Obama claims it will be only 7.9%. And so on.

Shorn of these tricks, the CBO finds that what remains is a fiscal plan that will leave the country mired in gargantuan deficits and debt.

Over the next decade, Obama's plan will produce annual deficits averaging 5.3% of the economy — compared with a post-war average of 2%. Even Obama's own budget director says that's unsustainable. Meanwhile, the national debt will hit 82.4% of GDP in 2019 under Obama's plan, according to the CBO, more than double the post-war average.

Worse, none of this includes Obama's pledge to expand health coverage. In his budget, he sets $606 billion over the next decade for health reform — through Medicare cuts and new taxes. But that's less than half the money most experts say is needed to fulfill Obama's universal health care pledge, leaving still more federal debt on the books.

Worse still, Obama would pile on all this debt just before the baby boomers start retiring in earnest, putting intense new pressures on federal deficits. Social Security's annual deficits will top $100 billion in 2020 and quickly go up from there, according to the Social Security Administration.

In response to all this, the administration says it's not giving an inch on its huge spending plans. And it goes on to dismiss the CBO as unreliable. "The CBO's projections," Obama budget director Peter Orszag wrote on the White House Web site, "are subject to a high degree of uncertainty."