Friday, March 20, 2009

The 2010 Federal Budget: Bad Math and Transparency

I've been bookmarking web pages to eventually write about the 2010 Federal budget. Since I have recently written about my inflation expectation, I should finally compose the blog essay.

First, the math problems. The budget uses what my Math 25 class politely calls "pliable statistics".
  • The baseline used to measure "budget neutrality" is actually inflated by $5 trillion: what is reported as a $2 trillion decrease over the next ten years is actually a $3 trillion increase.
  • Discussions of tax amounts tend to cite tax rates on taxable income instead of the effective tax rate on total income. Moreover, the proposed cap-and-trade plan is effectively a large tax since it would drive up prices by more than its rebate amount.
Misusing statistics has finally causes Judd Gregg to speak out. "Pliable statistics" were also recently used with military Brigade counting.

Second, the size of the budget. To me this is bad news since I prefer Small Government and worry about upcoming inflation. Other people may not consider this bad news. In any case, the budget makes plans for expanding Big Government. It expects the Federal budget to remain above 22% of GDP for more than a decade. The government is not shy about keeping the deficit high (at or above 3% of GDP). The budget is deliberately anti-Reagan and even worries Putin.

Third, the budget overestimates economic growth for the next decade, especially since it relies so much on taxing the economy's small businesses.

Finally, beyond the math-based lack of transparency, inconsistencies abound. Our President procrastinated being intolerant of earmarks. Our Treasury Secretary promised to ignore a new law. Tax-supported colleges lack the restrictions of tax-supported businesses.

Overall, the 2010 budget is a dishonest mess. On one hand this could be called predictable business as usual (but on a larger scale). On the other hand, the new administration promised to have high standards and honest transparency, so I am disappointed.

Compounding the problem is how the media can be lost be or conflicted about how policies and their math work, and too often reports myths.

UPDATE: I should have ready today's news before blogging! Contrary to my last point, there are nice mainstream articles about the new CBO budget analysis. The changes are due to updated estimates, not "pliable statistics". Now that $3 trillion increase over the next ten years is estimated at a $5.3 trillion increase, and the deficit is expected to be not merely above 3% of the GDP, but "unsustainably" above 4% and soon above 5%.

UPDATE: Now I'm stunned by the misdirection in the report on the new CBO analysis. Year-old analysis, before bailouts and stimulus, is used incorrectly. The error margin for five-year projection is placed within a paragraph to implies a false comparison with one-year numbers from the previous sentence. A new official Administration long-term growth estimate is used (2.6% instead of the previous >4%). Finally, a "staw man" is used as if people were actually proposing to do nothing. Not a word is said about inflation!

UPDATE: More explanation of how the official math is bad, by the WSJ.

UPDATE: Ace adds that the defense budget is being cut despite claims of an increase.

UPDATE: Glenn points out this bundle of bad math in a May 11th health care speech.

UPDATE: At the end of June, the way to count "jobs created or saved" is unveiled, and is an Orwellian delight of misdirection and blame-passing.

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