Responding to today’s new, more pessimistic CBO scoring of the president’s budget in light of the deteriorating economic situation, Peter Orszag was at pains to emphasize that deficit projections are highly sensitive to relatively small changes in assumptions. For example, suppose that first you project revenues of $100 and spending of $103 for a $3 deficit. Then you get some bad news about the economy so projected revenue drops by five percent. Well, suddenly you’re looking at a deficit of $8. The alarming way to put this is that the deficit has nearly tripled. The calm way is that revenue has fallen by 5 percent.
Beyond that, Orszag observes that differences between OMB and CBO projections are normal, observes that CBO’s growth estimate is not only lower than OMB’s, but also lower than the Fed’s and lower than the blue chip forecast. He says that to put the issues in perspective, but “we recognize that the budget resolution will be written off the CBO numbers.” Thus, he reiterates the four main principles that animated the administration’s budget proposal. He doesn’t expect congress to return exactly what they wrote up, but he does expect it to adhere to these principles:
- “must invest in health care”
- “must invest in education”
- “must invest in clean energy”
- “must cut the deficit in half by the end of his first term”
In general, Orszag downplayed the significance of this report, saying that of course it will be taken into account as congress does its work “it’s not like the process would normally just have them take the budget, xerox it, and vote on it” so we shouldn’t think of congress tinkering with the proposal as being in response to the budget projections as such. “It’s a normal part of the legislative process to take the core things the president wants to get done and then work within those boundaries … beyond that, developments are ongoing and you’ll see the chairman’s marks some time next week.”