February 27, 2021

White House Expects Persistently High Unemployment

The White House budget office forecast on Thursday that unemployment would remain at 9 percent through the 2012 presidential election year, an outlook that it said calls for the sort of the job-creating tax cuts and spending President Obama will propose next week.

The unemployment outlook for the next 16 months reflects a 9.1 percent rate this year, down slightly from the 9.3 percent forecast when President Obama made his annual budget request in February. Next year, the projected jobless rate is 9 percent, up from 8.6 percent in the February forecast.

Unemployment will not return to the 5 percent range until 2017, the budget office said, reflecting the intensity of the hangover from the most severe recession since the Great Depression.

While the budget office’s unemployment forecast for 2012 is no surprise given similar private sector projections, it amounts to the White House’s official acknowledgement of the political hurdle in Mr. Obama’s path to re-election.

The Office of Management and Budget, in its annual midyear update of the nation’s fiscal and economic picture, also said federal budget deficits would be lower for this year and next. The decline stems from spending cuts that the White House and Congress agreed to this year, in particular their August deal to find up to $2.4 trillion in reductions over a decade. The Congressional Budget Office similarly revised its fiscal forecast in its midyear report last week.

For this fiscal year, which ends Sept. 30, the budget deficit will be just over $1.3 trillion, both budget offices have projected.

That is down $329 billion, or 20 percent, from the administration’s deficit estimate at the beginning of the year, reflecting higher-than-expected revenue and lower-than expected spending. A $1.3 trillion deficit is equal to 8.8 percent of the economy, as measured by the gross domestic product, which is far above the 3 percent level that economists generally consider the maximum level desirable.

But the budget office report, released by Jacob J. Lew, Mr. Obama’s budget director, argued that the combination of savings mandated by the August deficit reduction deal and reduced spending over time in Iraq and Afghanistan, together with the expiration of the Bush-era tax cuts for high incomes, would bring the deficit to 2.2 percent of G.D.P. after a decade.

Letting the individual tax rate cuts expire for annual incomes above $250,000 as scheduled after 2012 would save more than $1 trillion through 2021, the Office of Management and Budget said — $866 billion in revenue and $166 billion in interest savings from a lower federal debt.

The importance of also realizing the separate savings called for in the budget deal is why Mr. Obama plans next Thursday to recommend “an ambitious, comprehensive and balanced deficit reduction plan,” the report said. The administration hopes to influence the special Congressional committee that was created by the deal to reach a bipartisan plan by Nov. 23, for House and Senate votes by late December.

As the Congressional Budget Office earlier emphasized, even though annual deficits are expected to decline through the decade as the economy recovers, after 2021 they will climb again because of an aging population and high health care costs that are driving up federal spending, especially for Medicare and Medicaid.

“At the same time,” the report added, “Congress must appreciate that the economy is still wrestling with the after-effects of a very severe recession.” And that, it said, is why Mr. Obama also will propose a job creation initiative for the near term, including new and previously proposed ideas for temporary tax cuts and infrastructure programs and for retraining the long-term unemployed.

Article source: http://feeds.nytimes.com/click.phdo?i=e4a714b76d2974424ee7d153c3660a0e

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