The White House is relying on a set of optimistic economic assumptions in its budget that allows the Obama administration to claim a steeper drop in the deficit in coming years than many mainstream forecasters expect.
The budget forecast assumes that U.S. gross domestic product -- the nation's total economic output -- will decline about 1.2% this year, while private forecasts -- measured by the Blue Chip survey -- show a 1.9% decline. Next year the Obama team forecasts 3.2% growth, while professional forecasters expect a 2.1% gain.
Economic assumptions are vital to the budget forecasts. Stronger growth translates into more profits for businesses and greater income for individuals. That means higher tax receipts, which can reduce the nation's annual deficit and total debt.
The Obama budget puts the deficit at less than $600 billion starting in 2012 from $1.75 trillion this year. Getting to that point requires GDP to rise more than 4% a year by then -- meaning the U.S. would quickly return to growth rates similar to the boom years of the 1990s -- after the worst financial shock since the Great Depression. Such growth is more than a full percentage point above private-sector growth estimates for 2011 and 2012.
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