Hocus + Pocus = The 2012 Federal Budget Plan
This shouldn't surprise us, because the best way to "sell" a program or a budget is to lowball the costs and exaggerate the revenues. And it's not hard to find these flim-flam projections -- they're all public record.
Let's start with 2008, the year the U.S. economy slipped into recession: All data is drawn from the Whitehouse.gov website's Office of Management and Budget (OMB) tables.
- 2008 estimate: receipts: $2.66 trillion; outlays: $2.9 trillion; deficit: minus $239 billion
And here are estimates made in 2008 for future years:
- 2009: receipts: $2.8 trillion; outlays: $2.98 trillion; deficit: minus $187 billion.
- 2010: receipts: $2.95 trillion; outlays: $3 trillion; deficit: minus $94 billion.
- 2011: receipts: $3.1 trillion; outlays: $3.15 trillion; deficit: minus $53 billion.
Maybe the recession caught the federal budget estimators off guard, you say? Fair enough. Let's look at the estimates they made in 2009, when the economy was in a recessionary free-fall. By 2009, the OMB had plenty of data on the recession, and the opportunity to revise its previous estimates to more realistic levels.
But instead, the OMB continued issuing pie-in-the-sky estimates that grossly underestimated future deficits:
- 2009 estimate: receipts: $2.7 trillion; outlays: $3.1 trillion; deficit: minus $407 billion.
- 2010 estimate: receipts: $2.93 trillion; outlays: $3.09 trillion; deficit: minus $159.9 billion.
- 2011 estimate: receipts: $3.07 trillion; outlays: $3.17 trillion; deficit: minus $94 billion.
- 2012 estimate: receipts: $3.26 trillion; outlays: $3.22 trillion; surplus: $48 billion.
Next Year's Numbers
Now comes the President's just-delivered 2012 budget, which estimates a $1.6 trillion deficit, a sum that equals 11% of the nation's GDP.
The entire proposed 2012 budget is laid out in mind-numbing detail in a 180-page document that's long on minutiae and short on clear summaries. For instance, on the Table S-1 (page 146) the projected deficit in the proposed budget is listed at only $828 billion. This is markedly at odds with the $1.6 trillion deficit number cited in news reports.
But if we peek beneath the hood, these estimates of vastly higher tax revenues look suspiciously disconnected from history. Analyst and author Chris Martenson exhaustively dissected these estimates for future tax revenues -- and found the projections anticipate an astounding 65% increase in federal tax revenues in a mere four years.
Such a rise is unprecedented in U.S. history. Even the glory years of previous economic booms came nowhere close to increasing federal revenues at this pace.
Off by a Trillion Dollars
The proposed 2012 budget also counts on federal spending to decline both absolutely (from about $3.8 trillion to $3.7 trillion) and as a percentage of GDP -- from the current 25% of GDP to 22%. But this rosy outlook flies in the face of recent history.
As noted above, in the recession year of 2009, the OMB expected federal tax revenues to total some $3.2 trillion by 2012 -- a number that's about $1 trillion too high. The agency also expected federal outlays to reach $3.2 trillion -- too low by a cool $500 billion.
In other words, regardless of the economic climate, the OMB (and by extension, the White House) grossly overestimated tax revenues and grossly underestimated outlays.
The proposed 2012 budget expects tax revenues to climb to $3 trillion by 2013 -- a rather astonishing expectation, given that total tax revenues for 2011 are estimated to total about $2.1 trillion.
Is it even remotely plausible that the struggling U.S. economy will enable federal tax revenues to shoot up by almost 50% in a mere two years?
We might also reasonably ask if outlays can be restrained as projected. The OMB projected 2011's outlays to be $3.17 trillion a mere two years ago, but the reality is federal spending will be above $3.8 trillion this fiscal year.
The Big Three of the U.S. Budget
The New York Times recently published a graphic displaying each department's share of the federal budget showing the vast majority of federal spending is devoted to defense, Social Security and Medicare.
In the real world, these budgets are expanding rapidly, not declining. As I described here last month, Social Security outlays are already outstripping the program's income, years earlier than expected.
As for Medicare, baby boomers born in 1946 are now turning 65 and are entering Medicare at a rate of 7,000 per day, which will expand the ranks of this program by over 2.5 million this year alone.
Pentagon spending continues to climb for a number of reasons, including the rising cost of advanced weaponry. The new F-35 Lightning fighter jet, for example, will cost around $110 million a piece, with actual costs estimated to rise to $150 million per aircraft, according to some defense analysts.
According to the U.S. Navy, the plane being replaced, the Super Hornet F-18 E/F, cost $57 million each, though other estimates place its cost at $87 million. Either way, the replacement aircraft is significantly more expensive.
Clearly, it will be difficult to restrain costs in the three federal programs that dominate the budget.
After comparing the OMB projections with real-world data, it's a wonder the agency has any credibility at all. Perhaps it shouldn't.