Obama budget sees recovery gaining speed

By John W. Schoen, Senior Producer

President Barack Obama is feeling upbeat about the economic recovery,?maybe too upbeat.

As part of his $3.8 trillion spending plan for 2013, the president included an economic forecast that shows the nation?s gross domestic product moving ahead by 3.6 percent this year and 4.4 percent in 2013. Obama and his advisors also see the unemployment rate falling to 7.5 percent next year, with an inflation rate holding steady at about 2 percent through the rest of the decade.

The administration also predicts the recovery will produce strong growth in 2014 before the pace of growth begins slowing in 2015.

While typical of the rosy scenarios outlined by White House budgets in an election year, the president added a note of caution to his economic outlook.

"We are seeing signs that our economy is on the mend,"?Obama said in his budget message to Congress. ?But we are not out of the woods yet.?

The president?s numbers are higher than forecasts from the Congressional Budget Office and the Blue Chip survey of about 50 private business economists. One reason for the discrepancy, according to the White House, is that its forecast assumes the president?s budget proposal will be enacted as written.

The odds of that happening in an election year are slim to none.

?I don't think that anyone is satisfied with this?budget,? said Roger Altman, founder of Evercore Partners and a senior Treasury official in the Clinton administration. ?It confirms the dire debt and deficit outlook. And, of course, no major tax and spending changes, whether they come from the president or they're proposed by Congressional leaders, are going to be enacted before the election. ?

The White House budget proposal calls for some $4 trillion in deficit cuts over the next ten years. Under Obama's plan, the deficit would fall to $901 billion in 2013 and continue to shrink to $575 billion in 2018. In the short term, though, the administration wants to raise spending on some programs that it argues will help the recovery continue to gain momentum.

?We must transform our budget from one focused on speculating, spending and borrowing to one constructed on the solid foundation of educating, innovating and building," the administration said.

According to the administration, that means spending an additional $476 billion on transportation projects, including inner-city rail services; another $30 billion to modernize?35,000 schools; and $30 billion more to help cash-strapped states?hire more teachers,?police, rescue workers and firefighters. The White House said Monday that the president will also ask Congress to approve an $8 billion fund to support a joint effort between business and community colleges to train workers in high-growth industries.

Congressional Republicans wasted no time attacking the plan, saying increased spending was exactly what the economic recovery doesn?t need.

?There's a number of reasons why we're looking at the slowest, weakest recovery since the Great Depression, but frankly, this debt is a huge drag on our economy,? said Rep. Jeb Hensarling (R-Texas)?who was co-chair of the ?super committee? on deficit reduction. ?We got to quit spending money we don't have.?

Some Democrats argue that, with the recovery just beginning to take hold, many voters are more concerned about their own household budgets than whether the government begins to take meaningful steps to manage its own.

?For most people, according to what they tell pollsters, what they really care about is jobs and growth: deficit is actually is ranked pretty low,? said Jared Bernstein, former chief economist to Vice President Joe Biden. ?There?s going to be a lot of discussion today about the deficit issue. But from the perspective of the economy that's still climbing out of recession, I think at this point adding to the deficit in the interests of short term economic boost actually makes a lot of sense.?

The administration is hoping that the latest improvement in the job market may deflect some criticism of its failure to forge a bipartisan solution to shrink the federal deficit. On the job front, the White House forecast was only slightly more optimistic than either the CBO or Blue Chip forecasts. Although all three see job growth as remaining weaker than normal for the next several years, the White House is a bit more optimistic in projecting a jobless rate of less than 6 percent by the end of 2017. (The administration?s current thinking may be even more upbeat: because the projections were made in November, they don?t factor in the much better-than-expected jobs numbers for the last two months of 2011.)

Notably absent are any broad proposals to revise the tax code. The plan includes some changes, including the so-called ?Buffet rule? that would close a tax break for investment income that lets billionaires like Berkshire Hathaway CEO Warren Buffet pay a lower percentage of income than his secretary. But the budget sidesteps the much thornier issue of comprehensive reform of the complex, bloated tax code that has been widely criticized by members of both political parties.

?Fundamental tax reform has been agreed upon across the spectrum from the left to the right as something that is necessary,? said Douglas Holtz-Eakin, former CBO director and chief economist in the George W. Bush administration. ?The president has never put forward a single serious proposal on fundamental tax reform despite saying he wants it. If he wants it, put it in your budget.?

The White House may yet get a chance to oversee one of the biggest changes in the tax code in nearly a decade. With Bush-era tax cuts set to expire at the end of this year, the White House has a chance to raise taxes by doing nothing, or issuing a veto on any bill to extend them.

That gives Obama leverage in the debate over how much taxes should be raised to balance the budget.

?I think it's a golden opportunity to start fixing the deficit problem,? said Altman. ?You have $3.6 trillion of revenue over ten years to work with.?

Are the Obama administration's projections too rosy? Share your thoughts on Facebook.

President Obama will send his 2013 budget proposal to Congress today, with Jared Bernstein, Center on Budget & Policy Priorities, and Douglas Holtz-Eakin, fmr. White House chief economist. "This is a campaign document," says Holtz-Eakin.

Source: http://bottomline.msnbc.msn.com/_news/2012/02/13/10398405-obama-budget-sees-recovery-gaining-speed

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