Ambitious Budgeting

Today President Obama released a draft budget that promises to cut the deficit, reducing it, as percentage of GDP, from 12% to 3%. The President fulfilled his budgeting promise by no longer excluding various outlays such as wars and natural disasters (which was common under George Bush). However, many economists believe that although the plan might be more transparent then previous budgets, the assumptions built in seem “wildly optimistic”.

The President’s budget assumes that from 2010-2013 the US economy will grow by a brisk 4% per year. This growth estimate is above the latest private sector estimates that were released in January. Since then, the likelihood of an economic recovery in 2009 has dropped, and the next private sector estimates will likely be even lower.

Even if the economy does not slip into a very lengthy recession or period of stagnation, the President’s 3% goal is extremely ambitious according to Alan Auerbach of The University of California at Berkley and William Gale of The Brookings Institute. The two predict the deficit will bottom out at 5% of GDP in 2013 but then climb to 6% by 2019.

Such lofty revenue assumptions could indicate that President Obama is trying to prove to the country that he truly believes in the optimistic vision outlined during his first address to Congress.