Like all budgets, the federal government's spending plan is all about revenues and expenditures. Unfortunately, Uncle Sam is very good at grossly overestimating tax receipts and grossly underestimating spending.

This shouldn't surprise us, because the best way to "sell" a program or a budget is to lowball the costs and exaggerate the revenues. And it's not hard to find these flim-flam projections -- they're all public record.

Let's start with 2008, the year the U.S. economy slipped into recession: All data is drawn from the Whitehouse.gov website's Office of Management and Budget (OMB) tables.
  • 2008 estimate: receipts: $2.66 trillion; outlays: $2.9 trillion; deficit: minus $239 billion
Problem is, the OMB whiffed the deficit by a few hundred billion because the actual number came in at $455 billion.

And here are estimates made in 2008 for future years:
  • 2009: receipts: $2.8 trillion; outlays: $2.98 trillion; deficit: minus $187 billion.
  • 2010: receipts: $2.95 trillion; outlays: $3 trillion; deficit: minus $94 billion.
  • 2011: receipts: $3.1 trillion; outlays: $3.15 trillion; deficit: minus $53 billion.
These estimates were laughably off the mark: The actual deficit projected for fiscal year 2011 is now $1.5 trillion, according to the nonpartisan Congressional Budget Office (CBO).

Pie-in-the-Sky Figures?


Maybe the recession caught the federal budget estimators off guard, you say? Fair enough. Let's look at the estimates they made in 2009, when the economy was in a recessionary free-fall. By 2009, the OMB had plenty of data on the recession, and the opportunity to revise its previous estimates to more realistic levels.

But instead, the OMB continued issuing pie-in-the-sky estimates that grossly underestimated future deficits:
  • 2009 estimate: receipts: $2.7 trillion; outlays: $3.1 trillion; deficit: minus $407 billion.
  • 2010 estimate: receipts: $2.93 trillion; outlays: $3.09 trillion; deficit: minus $159.9 billion.
  • 2011 estimate: receipts: $3.07 trillion; outlays: $3.17 trillion; deficit: minus $94 billion.
  • 2012 estimate: receipts: $3.26 trillion; outlays: $3.22 trillion; surplus: $48 billion.
So, in the depths of the Great Recession, the OMB reckoned the federal government would be generating a surplus of $48 billion by 2012.

Next Year's Numbers


Now comes the President's just-delivered 2012 budget, which estimates a $1.6 trillion deficit, a sum that equals 11% of the nation's GDP.

The entire proposed 2012 budget is laid out in mind-numbing detail in a 180-page document that's long on minutiae and short on clear summaries. For instance, on the Table S-1 (page 146) the projected deficit in the proposed budget is listed at only $828 billion. This is markedly at odds with the $1.6 trillion deficit number cited in news reports.

The explanation is the $1.6 trillion deficit is based on current tax and spending policies, and the lower number in the proposed budget includes much higher tax revenues, thanks to the higher taxes proposed by the president.

But if we peek beneath the hood, these estimates of vastly higher tax revenues look suspiciously disconnected from history. Analyst and author Chris Martenson exhaustively dissected these estimates for future tax revenues -- and found the projections anticipate an astounding 65% increase in federal tax revenues in a mere four years.

Such a rise is unprecedented in U.S. history. Even the glory years of previous economic booms came nowhere close to increasing federal revenues at this pace.

Off by a Trillion Dollars

The proposed 2012 budget also counts on federal spending to decline both absolutely (from about $3.8 trillion to $3.7 trillion) and as a percentage of GDP -- from the current 25% of GDP to 22%. But this rosy outlook flies in the face of recent history.

As noted above, in the recession year of 2009, the OMB expected federal tax revenues to total some $3.2 trillion by 2012 -- a number that's about $1 trillion too high. The agency also expected federal outlays to reach $3.2 trillion -- too low by a cool $500 billion.

In other words, regardless of the economic climate, the OMB (and by extension, the White House) grossly overestimated tax revenues and grossly underestimated outlays.

The proposed 2012 budget expects tax revenues to climb to $3 trillion by 2013 -- a rather astonishing expectation, given that total tax revenues for 2011 are estimated to total about $2.1 trillion.

Is it even remotely plausible that the struggling U.S. economy will enable federal tax revenues to shoot up by almost 50% in a mere two years?

We might also reasonably ask if outlays can be restrained as projected. The OMB projected 2011's outlays to be $3.17 trillion a mere two years ago, but the reality is federal spending will be above $3.8 trillion this fiscal year.

The Big Three of the U.S. Budget

The New York Times recently published a graphic displaying each department's share of the federal budget showing the vast majority of federal spending is devoted to defense, Social Security and Medicare.

In the real world, these budgets are expanding rapidly, not declining. As I described here last month, Social Security outlays are already outstripping the program's income, years earlier than expected.

As for Medicare, baby boomers born in 1946 are now turning 65 and are entering Medicare at a rate of 7,000 per day, which will expand the ranks of this program by over 2.5 million this year alone.

Pentagon spending continues to climb for a number of reasons, including the rising cost of advanced weaponry. The new F-35 Lightning fighter jet, for example, will cost around $110 million a piece, with actual costs estimated to rise to $150 million per aircraft, according to some defense analysts.

According to the U.S. Navy, the plane being replaced, the Super Hornet F-18 E/F, cost $57 million each, though other estimates place its cost at $87 million. Either way, the replacement aircraft is significantly more expensive.

Clearly, it will be difficult to restrain costs in the three federal programs that dominate the budget.

After comparing the OMB projections with real-world data, it's a wonder the agency has any credibility at all. Perhaps it shouldn't.

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74 Comments

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captmerit

What a joke

February 18 2011 at 11:42 AM Report abuse rate up rate down Reply
Trevor

Claiming budget savings by freezing spending at today’s levels is like an alcoholic who says he’s sober because he’ll never drink more than yesterday’s bender. Trouble is, this alcoholic doesn’t even pay his own tab.

February 18 2011 at 9:44 AM Report abuse rate up rate down Reply
The Pirate

You can't argue with stupid which are what republicans are. The reason they don't understand is because they have a genetic defect in the part of their brain that does the common sense thinking.

Lets fix the problems not keep bashing the President who is actually trying to help repair what Bush and cronies actually caused. How do we fix it you ask?? Lets actually raise the taxes on the wealthy, raise the cap on Social Security. Cut military spending. Get us out of Germany and other countries that don't need us.

February 18 2011 at 2:37 AM Report abuse -8 rate up rate down Reply
3 replies to The Pirate's comment
surfr45

Our socialist public educational system has indoctrinated our children into believing capitalism and freedom is bad and socialism is good. If Socialism is so good, why does the long time socialist government of Mexico boast of being the #1 producer of silver, plenty of oil, and the richest man in the world, yet 99% of their people are in the poverty level making an average of less than 6 dollars a day. Corruption is rampant. The evil, ultra rich see Mexico and want to implement socialism here, where they can have all of the wealth and power and the middle class will now be among the poor. That is what their Demoncrat puppets in the white house and senate are doing to us.

February 18 2011 at 2:33 AM Report abuse +7 rate up rate down Reply
1 reply to surfr45's comment
INDEPENDENT VIEW

surfr45
One of the biggest "socialist" states is Germany. Now tell me they don;t have it right. They and France (another socialist gem) are supporting most of Europe and being well off. Go there and find me a slum. I was there for 3 years and I couldn't find one. Oh, and social security, it is still running a surplus, even though this year thanks to the continuation of the Bush tax law we reduce FICA (social security and medicare premiums) from 8% to 6% now that really helped our social security problem. When we had a budget surplus, that Clinton handed to Bush, what did Bush do, he went to congress and asked for a refund. He got his tax cut. We are now swimming in his red ink and it is time to discontinue his tax refund for all of us.

February 20 2011 at 6:24 PM Report abuse rate up rate down Reply
ldavid217

Definition of Investment in the private sector = putting money into something with the expectation of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, income (dividends), or appreciation (capital gains) of the value of the instrument.[1] It is related to saving or deferring consumption. Definition of Investment in the public sector= Raise Taxes and spend.

February 18 2011 at 12:29 AM Report abuse +2 rate up rate down Reply
gpfs

I would wager, we could go thru the budget and cut $600 - $700 billion, change the tax code and generate another $600 - $700 billion and be done in about a week. Get the Federal government back to what it was created for, and give the state and local government back their responsibilities. It make's no since for me to send money to DC, to have them send back to my state. Get them out of our way.

February 17 2011 at 11:23 PM Report abuse +5 rate up rate down Reply
gpfs

Congress has shown over the past decades they can not be trusted with the peoples money. We need Constitutional Amendments for a Balanced Budget and Term Limits of 12 years. Corporate and Individual tax reform, including the 47% of American workers who pay no income tax.

February 17 2011 at 11:14 PM Report abuse +3 rate up rate down Reply
clark8642

The new/extended tax cuts should not have been approved for anyone, rich or poor, until after serious spending cuts had been made. With the prospect of a return to the higher pre-Bush taxes there would have been an incentive for real cooperation between the parties to cut spending. Now it is just borrow and spend and redistributing our grandchildren's wealth. As an aside, it might be useful for the government to move to accrual based accounting rather than the current cash basis.

February 17 2011 at 9:36 PM Report abuse rate up rate down Reply
1 reply to clark8642's comment
Trevor

Raising taxes gives politicians the exact opposite incentive to the one you suggest. As long as they can continue to confiscate ever more of the fruits of citizens labor, whey should they reign in their profligate ways?

February 18 2011 at 8:59 AM Report abuse rate up rate down Reply
fasteddie

How bout cutting kick-backs to the Unions. That would be un-precedented

February 17 2011 at 8:50 PM Report abuse +7 rate up rate down Reply
1 reply to fasteddie's comment
The Pirate

Idiot

February 18 2011 at 2:42 AM Report abuse rate up rate down Reply
rharlow601

why does,nt, Mr. obama,cut back on all federal workers,pensions and benefits,this would save the regular tax payers, billion's and billion's... And the states should do the same for state workers..

February 17 2011 at 7:54 PM Report abuse +6 rate up rate down Reply
2 replies to rharlow601's comment
gpfs

Actually Civil Service pension system is not that great. One percent of base salary for each year worked. 30 years, 30%. The matching 401k, is what makes the retirement system good. They should pay more for their health care!

February 17 2011 at 11:19 PM Report abuse rate up rate down Reply
surfr45

Mr. obama doesn't want our free, capitalist system to work. He is trying to as said in his own words "transform America" into his idea of a socialist utopia.

February 18 2011 at 2:38 AM Report abuse +3 rate up rate down Reply