The bombshell CBO report and why Obama should be worried

posted at 12:05 pm on February 2, 2012 by Ed Morrissey

Today, Politico’s Jim VandeHei reports that economic indicators should have Barack Obama worried about his re-election prospects, not more sanguine.  VandeHei relies heavily on this week’s economic and deficit projections from the CBO, but perhaps not heavily enough:

A new CBO report grabbed lots of headlines for projecting the deficit will top $1 trillion this year — making Obama the first president ever to pile up $1 trillion or more every year in office. That’s not great politics. But it’s not even the worst news contained in the CBO report. The unemployment number is.

The CBO projects unemployment will rise, hitting 8.8 percent in the third quarter of the year, the heart of the campaign. That’s terrible politics. Obama advisers have told us repeatedly on background that if unemployment is above 8.5 percent in the final months of the campaign, it will be extremely hard, if not impossible, to win. The advisers say independents will not return to Obama if it looks like economic growth is anemic and uncertain and it looks like his policies did little, if anything, to create new jobs under his watch.

Economists seem divided on the question of whether robust enough economic and job growth can happen in time for Obama to benefit. Some see signs of possibility in holiday sales and consumer spending in some parts of the country. Others see more of the same: a slow slog back. The CBO sees 2.2 percent growth in the quarter ending in September, essentially the same sluggish pace of a year earlier.

All of this is true — and more.  Barack Obama will claim that the same report shows America entering a more rapid pace of economic growth after 2013, with deficits falling to $200 billion and 1.5% of GDP, which is what the CBO report claims … under the assumption that current policies will remain in place.  I walked through those scenarios for The Fiscal Times in my column today, and explained the fantasy that would involve:

The report does project that annual budget deficits will “decline markedly” in the next ten years after this budget cycle, to as little as $200 billion a year and 1.5 percent of GDP, both very manageable levels of deficit spending. How will this miracle occur?  According to current law, which is the only guide that the CBO can use, the Bush-era tax rates will expire across the board, and the Alternative Minimum Tax will not be restrained from reaching far into the middle class.  The latter change will increase the number of American households subject to the AMT from four million in tax year 2011 to thirty million in tax year 2012. If readers can imagine any Congress subjecting middle-class voters to that kind of a tax shock in a single year, then this will sound like very good news indeed. Otherwise, this is an exercise in irony.

That gives one measure of just how seriously Washington takes deficit control. Here’s another: the automatic cuts passed in last year’s Budget Control Act would only deduct $105 billion from the deficit in 2015, while keeping the AMT and rate changes would add $395 billion to the federal government’s coffers.  By 2020, the BCA’s budget cuts only reduce the annual deficit by $137 billion, while the extra taxes add $685 billion to the kitty.  However, if Congress indexes the AMT as expected and extends the 2001/3 tax rates, the deficit picture looks bleak indeed.  It would get only as low as $664 billion in 2015 before nearing a trillion dollars again in 2020, and exceeding it by 2022, even with the minimal cuts in place.

What happens to the economy if Congress allows these massive tax increases to take place?  The CBO expects the economy to grow at a 2.0 percent rate in 2012, about the same stagnation rate we have seen for the past two years.  In 2013, though, with the capital sucked out of the market, the economy will slow even further to 1.1 percent, and for the economy to remain below its potential – until 2018.  Taxpayers and investors will lose ground on taxes and economic opportunity while Washington does nothing to curb spending – the real driver of these deficits.

The rest of the column reviews the track record of the Republican candidates to determine which might do best at accomplishing actual spending reductions in the next four years, so be sure to read it all.  However, the big story from the CBO is just how badly the taxpayer-contribution approach to deficit control would hammer the middle class — from both ends.  Economic growth at stagnation levels means fewer jobs, continued slow demand for housing and a resulting further decline in home values, and an erosion of retirement options.  Heavy taxation, especially through the EMT, means a lot less disposable income and ability to save and spend.  If the middle class thought they were getting squeezed before this, they won’t have seen anything yet.

This is the result of Obamanomics, the result of out-of-control spending from both parties, and the reason that actual spending cuts — not just a reduction in the rate of spending growth — needs to be the central economic argument in this year’s election.  Republicans need to start charting these numbers in digestible form now and start hammering them all the way to the general election no matter who wins the nomination, and activists have to focus on Senate and House races more than ever.


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Comment pages: 1 2

If you think Obama’s judicial nominations will be better than Romney’s, you need to get back to your padded cell before you hurt yourself.

BradTank on February 2, 2012 at 2:30 PM

Didn’t say that at all. I said I’m not excited about the prospect of Romney appointments. We’re in primary season so the choice between Barky’s appointments and Romney’s appointments is a false choice.

Frankly, I’m not a Newt guy, but I do think his appointments would be far superior to Mitten’s. If you’re voting soley based on SCOTUS appointments, then you must support Newt right?

Lost in Jersey on February 2, 2012 at 2:59 PM

Gingrich is the only candidate who has actually succeeded at achieving any part of the conservative agenda, including the balancing of the budget. Yeah, there was a social security/Medicaid gimmick in play, but it was a significant reduction in government spending, achieved against a hostile President, with the opposing party in control of the Senate, and in the face of the headwind called “The Clinton Slime Machine.” So you’re a damned fool if you discount it. It was a significant achievement in the right direction.

For that matter, you’re doubly a damned fool if you consider Ron Paul a serious candidate even for a millisecond. Paul is a loon. Even on the topics about which he knows something — national finance and the US Constitution — his positions are studded with factual missteps. His foreign policy is a patchwork of policies that made sense in 1790 woven together with brainless progressive sound bites. And if, by some dark miracle, he became the Republican nominee, the exposure of his newsletters from the 1990s would not only settle the election by mid-September, but would saddle the Republican party with a reputation for racism that would not be erased for a generation.

PLEASE get Ron Paul out of your vocabulary. He’s worse than the worst plausible disaster this year.

philwynk on February 2, 2012 at 2:11 PM

I’m pretty sure the GOP had control of the Senate while Newt was Speaker. But that’s besides the point.

Newt should be applauded for his accomplishments as Speaker of the House. But let’s stick to the main issue in my original comment, the balanced federal budgets. Newt claims that under his leadership the federal budget was balanced four consecutive years. However, behind the smoke and mirrors the national debt increased by nearly $1 trillion. In that regard, he’s being a little more than misleading. With that said, I do believe that had it not been for his leadership, an unrestrained Clinton would have done much more damage. For that, and his other accomplishments, Newt should be commended. But let’s not be fooled, the budgets were only balanced on paper.

ncconservative on February 2, 2012 at 3:36 PM

Frankly, I’m not a Newt guy, but I do think his appointments would be far superior to Mitten’s. If you’re voting soley based on SCOTUS appointments, then you must support Newt right?

If I’m voting based purely on SCOTUS nominations then I’m voting Romney over Newt since you actually have to be President to make judicial nominations.

Voting for Newt means Obama gets to decide our next Supreme Court nominee since Gingrich has ZERO chance at becoming President.

When a candidate has universal name id and is losing by 20 points, a sane person would run in the opposite direction.

BradTank on February 2, 2012 at 4:00 PM

I fully expect some sort of attempt at a “civilian force” that’s “equal in size and strength” to the Nation’s Military.

A jobs program to beat all jobs programs. Announced at the beginning of summer with a massive hiring spree intended to create an awesome looking graph of unemployment falling off the cliff.

Jason Coleman on February 2, 2012 at 4:23 PM

This is a serious question as I really don’t know how this works. How can they project a one trillion dollar deficit if we dom’t actually have a budget?

hopeful on February 2, 2012 at 4:44 PM

Barry will appointed 50 millions czars in September to get the unemployment rate down to 7%, and by next month start have his Chicago home boys to go wilding on a daily basis in their hoods to trim the welfare roll. The picture will be so rosy by late October, it will be an easy re-election for Barry.

galtani on February 2, 2012 at 5:22 PM

fully expect some sort of attempt at a “civilian force” that’s “equal in size and strength” to the Nation’s Military.

A jobs program to beat all jobs programs. Announced at the beginning of summer with a massive hiring spree intended to create an awesome looking graph of unemployment falling off the cliff.

Jason Coleman on February 2, 2012 at 4:23 PM

I wouldnt put it past him at all.

Sultanofsham on February 2, 2012 at 5:41 PM

Frankly, I’m not a Newt guy, but I do think his appointments would be far superior to Mitten’s. If you’re voting soley based on SCOTUS appointments, then you must support Newt right?

Hmmmm…DeDe SCOZZAFAVA? Anyone? Anyone?

elowe on February 2, 2012 at 5:56 PM

This is a serious question as I really don’t know how this works. How can they project a one trillion dollar deficit if we don’t actually have a budget?

hopeful on February 2, 2012 at 4:44 PM

CBO operates under severe restrictions in their projections. Basically, they must accept all assumptions which are included in the proposal submitted to them. So the additional tax revenue from all the middle class taxpayers losing their Bush-era rates and others pushed into AMT is assumed to be collected, no adverse economic effect can be calculated, and they must assume everything else remains the same.

IOW, when you submit the request for a CBO projection, if you have your own computer geek to plug the numbers into a program similar to theirs, you already know what they will come back with.

It’s not as completely phony as they used to be when Democrats had controlled Congress for 40 years, but they’re still not accurate by any reasonable measure.

Adjoran on February 2, 2012 at 7:26 PM

Adjoran on February 2, 2012 at 7:26 PM

Thanks. So basically it’s all smoke and mirrors.

hopeful on February 2, 2012 at 7:53 PM

Average 1 trillion per year, for 10 years, plus the current 15 trillion is around 25. Fuzzy math? LOL!

TruLevinian on February 2, 2012 at 9:37 PM

As the election draws closer, the lies about the economy will simply get bigger and bigger, painting a rosy picture for the sheeple. The administration’s allies in the MSM will provide all the cover needed.

bofh on February 2, 2012 at 11:48 PM

Obama has been slipping lately. Not only is the CBO report bad news for his reelection, but the fight with the Catholic Church and the Keystone pipeline fiasco have also hurt him.

His election was an anomaly in the first place. Take away the race factor and he was always just another inexperienced junior senator. This time around, the public wants competence.

writeblock on February 3, 2012 at 2:25 AM

Frankly, I’m not a Newt guy, but I do think his appointments would be far superior to Mitten’s. If you’re voting soley based on SCOTUS appointments, then you must support Newt right?

Hmmmm…DeDe SCOZZAFAVA? Anyone? Anyone?

elowe on February 2, 2012 at 5:56 PM

Hmmmm… appointingendorsing

Pretty sure those are two completely different things.

As to Governor Romney’s record of appointments of judges verses what he says he’ll do… just take a look at his record.

How many conservative judges did he push for while Governor? How many liberal ones?

Snorkdoodle Whizbang on February 3, 2012 at 8:28 AM

What happens when you include those 1.2 million people in? Maybe Gallup has an answer. Their unemployment rate today is 8.7%.

ieplaya on February 3, 2012 at 1:54 PM

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