OMB today released its mid-session review, which updates budget and deficit projections.

The deficit is now projected to be $455 billion (4.2% of GDP) for FY 2003, and $475 billion next year.

The report says that about half of the deterioration since 2001 was due to the weak economy, and about a quarter was due to tax cuts, with the final quarter due to the war and other enacted legislation. These figures are, however, misleading. To the extent that the economic projections were overly optimistic in 2001 (as they turned out to be), the share of the deterioration due to economic factors is overstated.

In addition, it looks like the report is yet again counting on projections of a strong economy to keep the deficit numbers down.

"The Administration's economic projections for the Mid-Session Review show growth accelerating sharply beginning this summer, leading to more jobs and rising incomes. This projection assumes the economy will be free of significant, new negative economic shocks"

The report also states that "...during the second half of 2003, projected growth in the Mid-Session Review is stronger than in the [previous projection]." In addition, growth is projected to be higher in 2004 and 2005, which, they claim, is a result of recently enacted tax legislation. Finally, the report assumes that the unemployment rate will drop to 5.8% (from the current 6.4%) by the end of the year.

If any of these predictions fail, look for the deficit to increase even more.

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Posted at 10:30 -->

It looks like OMB is set to announce yet another increase in the deficit.

[more to come when OMB report is released]

Budget Deficit May Surpass $450 Billion (washingtonpost.com) War Costs, Tax Cut, Slow Economy Are Key Factors