Last summer, when the Office of Management and Budget (OMB) released its annual mid-session review of the budget, OMB director (and former assistant to the president) Joshua Bolten had some great news: "Because the president's economic policies are working, we are ahead of pace to meet the goal of cutting the deficit in half within five years."
When politicians promise a good outcome five years hence, it's a good idea to check what follows in year six. The OMB, which answers to the White House, stops making deficit projections exactly five years out. And its projections have to assume current law. That means they assume the Bush tax cuts expire, even though "the president's economic policies" include a plan to make them permanent, and that the alternative minimum tax won't be indexed for inflation in the intervening years, even though that's a virtual political impossibility.
The Congressional Budget Office (CBO) has a longer time horizon, and scholars at the Brookings Institution have used CBO data to project what would happen if the alternative minimum tax were adjusted and the tax cuts extended. The unsurprising result: With taxes reduced but spending unchecked, deficits make a comeback and keep growing in 2010, even before the entitlement explosion we'll see as the baby boomers retire.
Graph (not available online): Projected Federal Deficit (as percent of GDP)