The number crunchers at the Congressional Budget Office have been rather busy this week. As interesting as their examination of public vs. private sector compensation may be, today'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.
That's one ugly stat piled atop the next. Trillion-plus-dollar deficits in every single year of Obama first (and possibly only) term. Unemployment creeping back north toward nine percent (remember, the White House projected that joblessness would have sunk below six percent by the end of this year, due to their $825 Billion "stimulus"). And worst of all, very sluggish growth -- the engine that has the capacity to make all of these numbers if it weren't gummed up with destructive regulatory and spending policies. The US economy grew at 1.7 percent in 2011, which is roughly half of the final 2010 number. In light of those entrenched struggles, CBO is pegging our growth target at a measly 2.0 percent for 2012. Keep in mind that any happier numbers you coming from the Obama people are likely premised on much more robust growth forecasts. That level of economic expansion has yet to materialize, and the president is only proposing more of the same: Higher spending and raising taxes on job creators. Great. Incidentally, these 2012 debt projections are actually lowball estimates:
The deficit will be much higher if Congress takes several actions that many expect. If the Bush tax rates are extended, for example, the deficit would rise. It will also rise if Congress patches the Alternative Minimum Tax, which lawmakers have routinely done to prevent higher taxes from being imposed on middle class taxpayers. It would also rise if Congress continues to pass the “doc fix” that prevents a cut to Medicare payments to doctors, something that Congress has done on a near annual basis.
Finally, if Congress does not follow through on cuts mandated by the failure of the debt supercommittee, the deficit will grow. Lawmakers are already talking about cancelling scheduled cuts to the Pentagon’s budget. In the “alternative fiscal scenario”where these things happen, the national debt rises to $23 trillion by 2022. Total ten-year deficits amount to $11 trillion compared to $3 trillion in the current law scenario.
Most, if not all, of the Bush tax cuts will be extended -- since all taxpayers benefitted from them (a fact that Democrats often forget to mention). The AMT patch and the increasingly costly "doc fix" will both go through, as they always do. Ironically, the Alternative Minimum Tax correction is an annual must-do for Congress in order to prevent a 1960s-era "Buffett Rule" -- which targeted a tiny handful of rich Americans -- from slamming tens of millions of households this year. In other words, Democrats in Congress are acting to reverse the disastrous, sloppy fallout from the last ill-conceived "fair share" tax while considering a new one.
UPDATE - Yikes. Jim Pethokoukis shares five frightening graphs, based on CBO's report. One example, entitled "huge deficits as far as the eye can see:"
As outlined above, the "alternate fiscal scenario" (in light blue) is quite likely.
UPDATE II - Hey, remember what Chuck Schumer said about the economy last week?
This guy is their top messaging guru.
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