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CBO Projects $1.8 Trillion Deficit; Orszag Responds

The Congressional Budget Office has conducted an analysis of President Obama’s budget proposal and now projects a $1.8 trillion deficit this year, up from a $1.2 trillion projection in January.

“As estimated by CBO and the Joint Committee on Taxation, the President’s proposals would add $4.8 trillion to the baseline deficits over the 2010–2019 period,” CBO Director Douglas Elmendorf wrote on his blog this afternoon. “CBO projects that if those proposals were enacted, the deficit would total $1.8 trillion (13 percent of GDP) in 2009 and $1.4 trillion (10 percent of GDP) in 2010.”

On a conference call just now with reporters, Office of Management and Budget Director Peter Orszag explained how the higher projected shortfall came about.

“As expected, it reflected a worsening of both the economic and fiscal picture since the CBO’s January report,” Orszag said. “I think one thing that’s often underappreciated is how sensitive the budget is to small changes in assumptions.”

As a hypothetical example, he said, if initial projections had spending at $1,050 and revenue at $1,00, and then revenue decreased 10 percent, the deficit would rise from $50 to $150 — a 200 percent increase.

But he insisted that the new projections will have no impact on the administration’s commitment to its four top priorities in the budget: health care, education, clean energy and cutting the deficit in half by the end of Obama’s first term.

Asked about the possibility of using the controversial budget reconciliation process to circumvent a possible GOP filibuster of cap-and-trade legislation, Orszag said, “With regard to reconciliation, I’ll again say, it’s not where we want to start, but it would be premature to take it off the table.”

The budget will now head to Congress, where Orszag anticipates there will be significant adjustments.

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