Tags: Mauldin | budget | proposal | CBO

Millennium Wave’s Mauldin: Federal Budget Proposals Are a Game of Make-Believe

By John Morgan   |   Tuesday, 16 Apr 2013 08:05 AM

Both the White House and Congress agree on at least one thing — they are embracing economic forecasts that assume a fantasy world with no recessions, unrealistic growth with increased revenues, tame interest rates as far as the eye can see and conveniently falling deficits, according to economist John Mauldin.

Mauldin, president of Millenium Wave Advisers, said all three U.S. budget proposals — House, Senate and White House — wish away the real world.

“It does not matter which version you prefer; they all lack the basic precautions and hedges that those of us involved with preparing family and business budgets make sure to include in our own forecasts,” he wrote in his Mauldin Economics newsletter.

Economist Predicts 'Unthinkable' for 2013

President Barack Obama’s budget projections predict 3.6 percent growth by 2016 with tax revenues up 50 percent. And the non-partisan Congressional Budget Office (CBO), which make projections used by both the House and Senate, shows growth tripling to 4.2 percent in the next three years, then leveling off to 4 percent.

“Government economists would like to assume a perfect world: no recessions; extraordinary, never-before-seen growth; peace, with no need to worry about nagging little military problems or defense; falling unemployment; rising tax revenues, when government spending is already taking a huge chunk out of the economy; interest rates staying under control; deficits falling over time; and on and on.”

According to Mauldin’s research, the last time growth for a full year hit 4 percent was in 1969.

“I should note that both the CBO and the Obama administration’s assumptions are much more optimistic than those of Federal Reserve economists (to the extent that they make projections),” he wrote.

“The CBO is supposed to be politically neutral. And it is: those 4 percent projections it came up with are good for both parties.”

Even with substantial increases in revenues, the pressure of entitlements and debt is shortchanging the nation’s future, Mauldin said. The result is unrealistic budget postures from all sides in Washington, D.C.

“Is that the course we want, or are we backing into it because we aren’t willing to challenge the assumptions that are producing it? Before we get mired in technicalities, that’s the threshold argument we should be having.”

Judd Gregg, a former New Hampshire Republican senator, wrote in a guest piece Monday in The Hill that the Obama budget proposal is "substantially irrelevant” because neither the Democratic-controlled Senate nor the Republican-controlled House will seriously consider it.

The president’s budget contains a glaring omission in that it fails to address urgently needed tax reform, Gregg noted.

“This budget is not about reform, it is about raising taxes, again. The revenues that are produced from the tax deductions and exemptions the president proposes ending or limiting do not go to reduce rates; they go to expanding government. The result is that they are totally counterproductive.”

Video: Economist Predicts 'Unthinkable' for 2013

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