President Obama’s latest budget is built on the assumption that the economy will rebound strongly, but his advisers said if they can’t halt the sequester their numbers won’t add up this year.
Mr. Obama, in the budget he submitted Wednesday, proposed canceling at least some of the sequesters this year and then further reductions in future years, arguing that the economy right now needs the investment that federal spending can bring.
With that boost, the White House says, the economy could grow by 2.6 percent this year.
But if the sequesters remain in effect, growth would slow to about 2 percent, according to the White House and the Congressional Budget Office. That is roughly the same rate of growth in 2012, when the economy struggled to add jobs.
“That implies that overall economic growth in 2013 will look a lot like economic growth in 2012,” said Alan Krueger, who chairs the president’s Council of Economic Advisers. “But the disappointing thing is that the economy is poised to grow more strongly.”
White House officials cited several reasons why the economy was set to kick into a higher gear if the sequester cuts hadn’t taken effect. The housing sector appears to have turned a corner, U.S. households are paying down their debts at a faster rate and corporate balance sheets are still strong.
Mr. Krueger said the White House tempered its 2013 growth projections because other threats including the European debt crisis and geopolitical tensions around the world also could throw off economic projections.
Still, the president’s projection of 2.6 percent for real gross domestic product growth this year is higher than other nonpartisan estimates. The Congressional Budget Office estimated that real GDP would increase this year by 1.4 percent, while the Blue Chip Economic Indicators put the increase at 2.3 percent.
The sequesters also could tamp down growth in future years.
Presidents regularly use optimistic growth calculations to write their budgets because a better economy means more tax revenue and less spending on safety net programs, making it easier to balance the budget.
Doug Holtz-Eakin, a former CBO director who advised Sen. John McCain’s 2008 presidential campaign, said the White House projects rapid economic growth in the next few years and predicts lower interest rates than in other estimates.
“It conveniently grows a little more quickly in the near term and slower later,” he said.
The White House insists that the plan is realistic and balanced, a combination of deficit-reduction and spending on initiatives aimed at helping the economy.
Gene Sperling, director of the National Economic Council, told reporters Wednesday that the plan hits the “fiscal sweet spot.”
“The president’s budget plan today hits the right balance, not just in terms of revenues and entitlement savings, but the right balance in terms of an economic strategy that strengthens jobs and the recovery in the short term while strengthening our long-term job creation and competitiveness,” he said.
• Susan Crabtree can be reached at scrabtree@washingtontimes.com.
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