CBO head keeps close counsel in assessing Bush budget

As Democrats begin to put together their fiscal 2008 budget, all eyes will be on the Congressional Budget Office as the nonpartisan scorekeepers for its estimates of the White House's spending and revenue numbers.

In a roundtable interview Monday with National Journal Group reporters and editors, CBO Director Peter Orszag would not comment on the agency's forthcoming re-estimate of President Bush's budget, due in early March. But he suggested that other than inflation -- CBO's projections are slightly lower than OMB's -- one possible explanation for higher revenue growth than the economic outlook might indicate could be that more revenue is being generated by wealthier taxpayers.

"Even if we got GDP exactly right, but more of the income growth was occurring at the very top of the income distribution, that would show up as higher revenues than projected for a given level of GDP because of a progressive tax system," Orszag said.

Democrats have been turning up the heat on the Bush administration for its allegedly too-rosy economic outlook, which relies on steady growth in tax receipts to bring the budget back to surplus by fiscal 2012.

Office of Management and Budget Director Rob Portman and Treasury Secretary Henry Paulson have defended the numbers as "conservative" when compared with recent revenue growth and might end up higher than expected when the administration re-estimates its budget outlook this summer. Assuming expiring tax cuts are extended, the administration estimates revenue will grow by roughly 5.4 percent annually over the next five years, considerably lower than the last two years.

CBO's revenue estimates from last month, before the president's budget was submitted, came in lower at about 4.3 percent average annual growth, using alternative assumptions factoring in the extension of expiring tax cuts. The difference causes a $155 billion swing in revenues during fiscal 2012, which would lead to a deficit rather than a surplus that year.

Portman and Paulson attributed most of the difference to different inflation estimates between OMB and CBO. "I've been in the business world and in financial markets too long to know that you -- you know, no one's got a crystal ball," Paulson told the House Budget Committee panel last week.

The investment firm Goldman Sachs, which Paulson used to head, said Bush's deficit estimates toward the end of the five-year budget window "look more aggressive, in part because OMB appears to have leveraged on recent improvement in the budget."

The Goldman Sachs analysis notes that the administration "foresees substantially more taxable income" in fiscal 2011 "in an economy that, by its estimate, is slightly smaller."

OMB's estimates are more optimistic than in its summer budget outlook due to higher corporate taxes and personal income other than wages and salaries, "most likely reflecting higher dividend payments on those extra profits," the firm's report says.