Where the Obama budget is leading us

Stephen Moore looks at the looming debt crisis that we will have if the Obama budget goes through. The Obama team is deceiving the public about the size of the debt by using rosy scenarios that Ronald Reagan wouldn't have dreamed of.

There are three ways that the Obama administration is understating the spending and debt levels embedded in the president's budget policies.

First, Obama uses highly optimistic assumptions on how fast the economy is going to grow and how many jobs are going to be created over the next five years. I've worked in a presidential budget office before. Believe me: If you manipulate the economic assumptions on unemployment and GDP growth, you can make the budget deficit in the future be whatever you want it to be. You can even, as Obama claims to do, magically cut a deficit in half without cutting a single program. From 2010-13, the head of the OMB, Peter Orszag, predicts that the U.S. economy will grow at a 4 percent annual pace, when the blue chip-economic forecast is closer to 2.7 percent. Of the 51 blue chip-economic forecasters, the OMB's forecast is more optimistic than all but two.

Liberals used to lampoon Ronald Reagan's budgets--sometimes with merit--for relying on a "rosy economic scenario," but even the Gipper's sunny optimism never led to economic predictions that departed so radically from independent forecasts. It turns out that about 75 percent of the celebrated halving of the deficit that Obama claims in his budget is purely a result of an irrationally exuberant economic model that almost no one believes is very likely. The Republicans on the Senate Budget Committee recalculated the OMB budget deficit assuming the average blue chip-economic forecast. It found that the Obama deficit will be $2.2 trillion higher over ten years.

Next is the hard-to-swallow assumption in the budget that all of the new spending in the $800 billion democratic "stimulus" bill that Obama signed in February will expire after 2011. "We are supposed to believe," says Paul Ryan, the ranking House Republican on the Budget Committee, that "Nancy Pelosi, Charlie Rangel, Henry Waxman, and Ted Kennedy are going to allow spending for programs ranging from education for disabled kids, to Pell Grants, to Head Start, to child nutrition programs to fall off a cliff two years from now." Not likely. When Ryan asked the Congressional Budget Office what happens if the spending for about two dozen of the most politically popular programs is continued, not cancelled, the CBO reported back that the deficit and federal outlays would be $3.27 trillion higher over the next ten years.

Finally, there is the crown jewel of the Obama-Pelosi-Reid domestic agenda: universal health care. This is at the top of the "to do" list of the Obama administration and is unlikely to get pulled back or postponed, as the president made clear in his press conference. Obama has not been specific about what plan he favors or about how much a national health care system will cost, but his budget allocates a $634 billion "placeholder" for that purpose. The consensus opinion, though, is that the lowest possible cost of universal health care is $1.2 trillion, with many estimating closer to $1.5 trillion. So team Obama is off by roughly $600 billion over ten years to cover all of America's uninsured. Obama says he will find ways to reduce health care costs at the same time, and I wish him well, but this is a promise that every president since Jimmy Carter has made and failed to keep.

Right now, about 8.5% of our budget goes to servicing the interest on our debt. Under Obama's plans it will skyrocket. It used to be that the looming crisis was that entitlement spending, particularly Medicare and Social Security were going to crowd out all the rest of the spending in the budget. Now they will be fighting with interest on the debt for the biggest chunk of the pie. And where do you think that will leave all the discretionary spending that our politicians would like to do? And how long do you think that China will continue to underwrite our debt? As Mark Steyn writes,

Where does the world's hyperpower go to borrow more dough than anyone's ever borrowed in human history? More to the point, given that, partly at the behest of Obama and Geithner, almost every other Western government is ramping up national debt to cover massive bank bailouts and other phony-baloney "stimuli," is there enough money out there to buy up the debt that's already been run up? Last week, at the official British Treasury auction, investors failed to buy the full complement of so-called "gilt-edged" 40-year bonds. Two such auctions have already failed in Germany. The U.S. Treasury, facing similar investor reluctance to snap up $34 billion of five-year notes, was forced to increase the interest it will pay on them. The Chinese and the Saudis have long taken the view that it's to their advantage to own as much of the Western world as they can snaffle up, but it's unclear whether even they have pockets deep enough for what America and the many Bailoutistans of Europe are proposing to spend.