The Economist comments on Obama's recently released federal budget: as a fiscal document, it is optimistic though not unreasonable; as a political move, it is an early campaign promise towards reelection.
Washington wonks are focused today on the release of the Obama administration's budget proposals for the 2013 fiscal year. We will have in depth coverage following the White House budget briefing. For now, a few things stand out. First, the president's proposals generate a federal deficit of $900 billion in fiscal 2013. If it is verified, that would be America's first deficit of less than $1 trillion since the 2008 fiscal year. It would also represent a reduction in the deficit, as a share of GDP, from 8.5 percent to 5.5 percent. Overall, the budget calls for a reduction in the deficit to 2.8 percent of GDP by 2019, where it is projected to remain through the end of the ten-year budget window. That's close to primary balance--the government's books would nearly balance net of interest costs. The 2013 budget's proposals result in less deficit reduction than the plan produced (but not agreed upon) by last fall's bipartisan budget "Supercommittee."
In the short term, much of the president's deficit reduction can be attributed to economic improvement. The budget envisions a recovery that accelerates, in real terms, through 2015, after which growth settles down to 2.5 percent. That's certainly an optimistic forecast, though it's not entirely unreasonable. Given the scope for catch-up growth back to potential, we would expect, in the presence of appropriate macro policy and absent severe shocks, for growth to be above trend for a few years. Of course, both policy and unexpected headwinds have constrained recovery since 2009.