Forecasting the Future


Sunday June 2nd, 2013   •   Posted by Craig Eyermann at 3:46pm PDT   •  

Every year, the White House’s Office of Management and Budget (a.k.a. “the OMB”) puts together the President’s budget proposal for the U.S. federal government. Those proposals include forecasts of the amount of revenue and spending the U.S. government will have for the next five years into the future.

So how good is the OMB at actually forecasting the future for the U.S. federal budget?

Political Calculations did a two-part study of the topic. The chart below shows what they found for the last 10 years worth of OMB forecasts for spending:

forecast-US-federal-government-spending-vs-reality-FY2004-FY2014

They found a major difference between the accuracy of the OMB’s forecasts between the Bush and Obama administrations:

Looking over President Bush’s record, we find that the federal government’s actual level of spending was often anywhere from $60 billion to $90 billion greater than the amount originally proposed by the President. This is largely the result of the U.S. Congress adding spending on top of the amounts proposed by the President. Generally speaking, this outcome suggests that President Bush’s political priorities were largely agreed to by the U.S. Congress during his tenure in office.

By contrast, President Obama’s spending proposals have always been considerably out of whack with respect to the general consensus within the United States for the appropriate level of federal government spending, which we can observe in the vertical separation between President Obama’s desired level of spending and the actual amount of spending that has occurred during his time in office. Politically, we can observe just how out of whack President Obama’s desires for spending have been in the near universal margins by which his budget proposals have been rejected in the U.S. Congress.

So we see that there’s a major difference between the Presidents in terms of spending philosophy and the success of each in getting the U.S. Congress to go along with their basic spending initiatives.

But that’s only half the picture — the half that’s fully under the control of the federal government. The other side of the budget picture is the amount of revenues that the government might collect from taxes, fees, insurance premiums, et cetera, which dictate how any big budget deficits might be, which in turn affects how fast the national debt grows.

The chart below shows how the federal government’s revenues have stacked up against reality:

forecast-US-federal-government-revenues-vs-reality-FY2004-FY2014

In this chart, we see that President Bush’s OMB tended to underpredict how much revenue the federal government would take in by a relatively small margin, with the exception of their final budget forecast for Fiscal Year 2009 (FY2009), which was issued in February 2008. Here, the Bush administration’s OMB failed to predict the onset and impact of the recession that sent the U.S. government’s revenues crashing in FY2009.

Meanwhile, under President Obama, the OMB has continually overpredicted how much revenue the U.S. federal government might collect by a wide margin, as the President’s various initiatives to stimulate the economy have continually fallen short of the President’s promises for an economic recovery.

Overall, these results mean that there’s little to trust in the OMB’s forecasts for future federal spending and especially for future revenue collections, where they might as well have been throwing darts at one quadrant on a target while blindfolded. To put it mildly, their forecasts have been neither accurate nor precise.

accuracy_vs_precision_556
Image Source: National Oceanic and Atmospheric Administration

In an upcoming post, we’ll take a closer look at how the Congressional Budget Office has done over the same period of time to see if their forecasts are any more credible.

Featured Image:
Federal Highway Administration



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