Forgiving a Mistake in the Federal Budget

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Susan Walsh/AP

The Senate and House budget resolution conference committee meeting on Capitol Hill in Washington

The Administration says that the budget deficit for the current fiscal year will be 5% higher than previously forecast which will puts the number above $1.8 trillion. The spread between the old number and the new one is $89 billion. The White House figure now matches the estimate of the Congressional Budget Office, an estimate which the Administration had earlier disputed.

The Administration's initial forecast, provided by the Office of Management and Budget, never had a chance. While the costs in the document might have been controlled well enough to meet expense estimates, the rate at which the economy is coming unhinged always meant that the amount of money which was supposed to come in from taxes was always at risk. OMB now says tax receipts will drop a breathtaking 15% compared with last year. (See pictures of the Top 10 scared traders.)

The Administration may find that it would be better off to hold its tongue about the rate at which the deficit is growing. It is still forecasting that GDP will only drop 1.2% in 2009. That number is clearly improbable which should shake whatever confidence the taxpayers have in the forecast. Anyone watching the process of budget revision as the bottom line gets progressively worse understands that a $2 trillion deficit for the year is possible, and perhaps likely.

The rise in the rate of unemployment would have to be reversed almost immediately, and the sales in the private sector would have to make an unprecedented rebound if the Administration is to have any chance of holding the line at a $1.8 trillion. Neither of those things is going to happen. (See pictures of the global financial crisis.)

The reaction of Congress and the public to this deteriorating outlook described by the authors of the budget document is muted. There was a hint of foreboding in the statement made by the Administration's budget director in the remark, "The change in the deficit estimates reflects upward technical revisions in light of new information regarding the collection of receipts, financial stabilization efforts, and other federal programs." The part about "new" information implies that current estimates may be superseded by future updates.

It seems defeatist to suggest that the best approach to the news of the rising deficit is resignation. It is an admission that there are no other alternatives left to shrink the gap. But, that is almost certainly the case. The Administration will have to be forgiven for its slip. The change in the numbers was outside its control.

Cutting expenses to meet falling revenue is a normal and prudent business practice, but it is not one that will be adopted in this case. The simple calculus behind the budget assumes that if the appropriate amount of money is not spent, the chances of an economic recovery will be undermined. The line items in the plan are meant not only to keep the government running but also to allow the proper amount of capital to be invested troubled areas like the banking industry.

There was remarkably little noise from those who might be concerned about the forecast of the increasing deficit. Those in the government who oppose big spending know that taking out programs which are supposed to be integral to an economic recovery would be considered unpatriotic. A focus on the falling tax receipts does not have a benefit except to emphasize hopelessness.

Douglas A. McIntyre

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