Tax News

CCH (cch.taxgroup.com) reports:

  A revised Congressional Budget Office (CBO) estimate of President Obama's budget released on March 20 forecast a $1.8-trillion deficit for 2009, topping the White House's earlier projections by $93 billion and setting off a firestorm in Congress over the country's worsening fiscal condition. The CBO cited recent government bailouts, tax legislation and the continuing turmoil in financial markets as causes for the growth in the deficit by more than $400 billion in both 2009 and 2010.

  The 10-year outlook was no better, as the CBO projected a $9.3-trillion deficit over 2010-2019, which is $2.3 trillion more than the administration had initially forecast and exceeds gross domestic product by over 5 percent.

  The new projections are likely to create significant problems for the Democrats' agenda as the House and Senate prepare to clear their respective budget plans through the committee process during the next two weeks. Senate Budget Committee Chairman Kent Conrad, D-N.D., who has already voiced concern over the administration's budget blueprint, said the new CBO numbers show that the continuing weakening of the economy has significantly worsened the fiscal outlook and will make it more challenging for Congress to craft a budget resolution. "The reality is we are going to have to make adjustments to the president's budget if we want to keep the deficit on a downward trajectory," said Conrad.

  House Majority Leader Steny H. Hoyer, D-Md., said that the new forecast was expected as a result of how quickly the economy has weakened. He defended Obama's budget as accurately accounting for the cost of indexing the alternative minimum tax (AMT), Medicare medical payments and two wars. Hoyer said, however, that it is essential for Congress to cut the deficit by working with the White House to craft a budget resolution that responds to the rising red ink.

  Proposed changes in tax policy are responsible for a 6.1 percent or $2.1 trillion loss in federal revenues over the next 10 years, according to the CBO. The proposals with the greatest effect on the budget include modifications to and the permanent extension of provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) (P.L. 108-27) extension of the Making Work Pay tax credit, indexing of the exemption amounts for the AMT, implementation of a cap-and-trade program to reduce greenhouse-gas emissions and limits on itemized deductions.

  Spending programs proposals would add $1.7 trillion over the next 10 years and associated interest costs would tack on another $1.0 trillion.

  Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, who is also a senior member of the Budget Committee, said the CBO numbers cannot be ignored by either the administration or Congress. "Congress and the administration need to get the message," he said. "People can afford only so much government spending, even for the worthiest-sounding causes."

OMB Response

  Office of Management and Budget (OM Director Peter Orszag said he remains confident the congressional budget blueprint, which uses CBO economic assumptions, will reflect President Obama's key priorities in health care, energy and education. The administration also believes the federal deficit can be cut in half by the end of Obama's term in office, noted White House Press Secretary Robert Gibbs.

  Orszag noted that CBO deficit projections over 10 years are more than $2 trillion higher than the OMB forecast due largely to the difference in OMB and CBO economic growth rate projections. Because of the sheer size of the spending and revenue numbers involved in determining the federal deficit, even a relatively small difference in growth rate estimates can lead to a significantly higher deficit estimate, he said.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff