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Obama's budget
$2 trillion gone and nothing to show for it

Obama's budget and the missing trillions

NOTHING better explains the fiscal setback Barack Obama's domestic agenda has suffered in the last year than this sentence from the budget:

Since the [previous budget] was released in February of 2009, unfavorable economic conditions and technical re-estimates have worsened the deficit outlook by $2 trillion through 2019—the equivalent of 1 percent of GDP per year—with a deterioration of about $200 billion in 2015 alone.

Got that? $2 trillion gone, with nothing to show for it: no new tax cuts, no new domestic programmes, not even new bail-outs: just gone because the economy is delivering up less tax revenue than Mr Obama anticipated a month after taking office.

A smaller GDP is only part of the story; the other part is those notorious “technical re-estimates”. For non-geeks, that usually means a dollar of GDP is delivering less revenue than it used to, perhaps because higher-taxed income like bonuses and stock options has fallen more sharply than other income. That lost revenue goes straight to the deficit, which is then compounded with higher interest in later years.

Even after Mr Obama raises the top two tax brackets, lets his beloved “making work pay” tax credit expire after 2011 (he had wanted it to be permanent), gives up any expected revenue from cap-and-trade and pencils in hundreds of billions of dollars of tax increases on the rich and multinationals, revenue for the next decade still averages just 18.3% of GDP, exactly what it averaged from 1980 to 2007. A year ago Mr Obama thought the deficit would fall to 3% of GDP by 2015. Now, he sees it falling to just 3.9% (and that's assuming health care savings, a discretionary spending freeze and a variety of other measures).

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