The Swine Line

Nicola Moore with the Heritage Foundation wrote a good item last week pointing out that Obama’s happy talk about how his massive government expansion will lead to our being able to spend our way out of the recession is misleading at best.

In her blog post, Obama’s Budget Is More Expensive Than Initially Thought, she highlights the fact that the Congressional Budget Office’s (CBO) estimates place the costs of President Obama’s budget in the best light possible.  Under those very dim lights, the CBO estimated that his spending orgy would only double the estimated deficits over the next 10 years.  So instead of doing nothing beyond the stimulus package and letting the deficits rise by $4.4 trillion over the next 10 years, the CBO said his proposed fiscal 2010 spending spree (yet to be enacted) would balloon the deficit to over $9.1 trillion.

However, Congressman Paul Ryan, the ranking Republican on the House Budget Committee asked the CBO to run the numbers again, but this time using interest rates that more closely resemble historical reality.  Ms. Moore’s post states,

Looking at three different interest rate scenarios, more accurate estimates of President Obama’s deficits would cost an additional $1.2 to $5.3 trillion, bringing the grand deficit-total to as much as $14 trillion.

Keep in mind that this still does complete the picture.  CBO is still using its economic assumptions from March 2009, which assumes that by the end of 2009 unemployment will top out at 9.4 percent.  In actuality, we’ve blown through that ceiling much earlier than expected and are now headed for double digits.

CBO still assumes:

On a fourth-quarter-to-fourth-quarter basis, the core con­sumer price index is forecast to increase just 1.4 percent in 2009, 1.0 percent in 2010, and 0.8 percent in 2011. 

It is difficult to imagine that when you print over $4 trillion of money in one year that it will have no effect on inflation.

CBO still assumes that when economic growth returns it will be robust, which would mean higher profits and incomes to tax for government revenue.

CBO also assumes that the government will be receiving over $600 billion in revenues from the auctioning off of carbon emissions permits under the Cap and Tax Climate Change legislation.  However, under the recently-passed House bill, that money won’t actually materialize because more than 85 percent of those permits are slated to be given away.

In August, CBO will be forced to swallow some more harsh reality when it publishes its mid-year review.  I suspect that CBO will still attempt to paint as rosy a picture of the economy as is feasible in order to placate the Democratic majorities in the House and Senate.  However, nobody should be surprised that the nation’s deficits will end up rising even higher as they react to a weaker economy with lower tax revenues and higher mandatory spending.