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Obama’s Economy: Bad, But Is It Bad Enough?

Today the Congressional Budget Office released a report that contained bad news for President Obama. Guy Benson writes, “White House Panic: Gruesome 2012 Economic Forecast Could Doom Obama.”

[T]oday’s dreadful report will cast a much darker and longer shadow over the 2012 presidential election landscape. Team Obama will likely put on a brave face and serve up rosier in-house economic figures in the media, but you’d better believe the CBO’s latest economic projections are causing a lot of heartburn at the White House. Hideous:

The Congressional Budget Office on Tuesday predicted the budget deficit will rise to $1.08 trillion in 2012. CBO also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013. These are much dimmer forecasts than in CBO’s last report in August, when the office projected a $973 billion deficit. The report reflects weaker corporate tax revenue and the extension for two months of the payroll tax holiday.

A rising deficit and unemployment rate would hamper President Obama’s reelection effort, which in recent weeks has seemed to be on stronger footing. If the CBO estimate is correct, it would mean that the United States recorded a deficit of more than $1 trillion for every year of Obama’s first term. The deficit was $1.4 trillion in 2009, $1.3 trillion in 2010 and $1.3 trillion in 2011. The largest deficit recorded before that was $458 billion in 2008.

CBO had forecast an 8.5 percent unemployment rate for the end of 2012 in its August report. It now expects the jobless rate to be higher, and to still be at 7 percent in 2015. The higher unemployment numbers are due to lower economic growth than previously estimated. Gross domestic product for 2011 is now estimated to have grown 1.6 percent in 2011, down from the 2.3 percent forecast in August. CBO a year ago had predicted 3.1 percent growth for 2011. The outlook for 2012 has also worsened. GDP is forecast to grow only 2 percent this year, compared to a previous estimate of 2.7 percent.

As Guy says, that is “one ugly stat piled atop the next.” But the CBO report actually understates the poor condition of the economy, as the Senate Budget Committee Republicans point out:

The Congressional Budget Office baseline budget outlook dramatically understates—by nearly $6 trillion—the deficit and debt path that the nation is on. The agency’s current law outlook shows deficits declining from $1.3 trillion last year to $1.1 trillion this year, and dropping further until fiscal year 2018, when it starts rising again. …

While on the surface of the report it appears that the budget outlook has become more benign, in fact it is not so. CBO’s projections look brighter only because the agency is required to use unrealistic assumptions regarding current law. What’s more, both the Congress and the president have in the past written laws in a way that manipulates the requirements under which CBO must operate. It sums up to a disservice to citizens who are owed the truth about the dire financial condition that the government faces.

In particular, the baseline outlook assumes the expiration of three policies that will not happen. First, it assumes that the tax cuts put in place in 2001 and 2003 will expire, raising taxes sharply at the end of this calendar year—a proposal not even President Obama supports. Second, the baseline assumes that the Alternative Minimum Tax (AMT) will begin to snare more and more taxpayers, even though the AMT has been patched annually to hold taxpayers harmless for more than a decade. Third, the baseline assumes that Medicare’s payment rates for physicians will decrease by 27 percent on March 1, 2012, despite the fact that Congress has repeatedly prevented the payment reduction. While those assumptions are not tenable, they do improve CBO’s baseline deficit outlook by $4.9 trillion over the projection period—overstating tax receipts by $4.6 trillion and understating Medicare spending by $326 billion.

The omissions regarding expiring policy also have an impact on the size of the national debt and the cost of servicing that debt. The higher interest costs add $846 billion to deficits and debt over the projection period, which make the total deficit impact of the excluded policies $5.7 trillion. Adding this amount to the baseline levels will increase gross federal debt to $27.4 trillion at the end of fiscal 2022. This would make the ratio of the nation’s debt to its economic output approximately 111 percent in 2022, even higher than it is today. …

An examination of CBO’s spending baseline shows that federal spending is on an unsustainable course.

From a political standpoint, the bad news may be coming just in time. Barack Obama has been clawing his way back toward respectability in the polls; currently Scott Rasmussen’s Approval Index stands at a -13, a poor rating but lofty compared to where Obama has been for most of his term. Worse, overall approval now exceeds disapproval for the first time in a long while, 51-48.

And the Democrats’ resurgence is also evident in Rasmussen’s latest congressional preference poll, where the Democrats now lead–albeit narrowly, at 41-40–for the first time in well over a year, I believe since before the midterm election.

So the Republicans have managed, somehow, to squander the strong position they have occupied since early in Obama’s term. To some degree, that is probably due to improving consumer sentiment. But I suspect it is more attributable to the GOP presidential campaign. What should have been a great opportunity to bang away at President Obama has become, instead, a fiasco for the Republicans, as the candidates, especially Newt Gingrich, have consistently violated Ronald Reagan’s 11th Commandment. We are now, I am afraid, seeing the consequences.

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