How bad is the economy? Would you believe …?

The lede story in Thursday’s paper was a jeremiad from The Associated Press quoting the Congressional Budget Office as saying the federal government is bleeding red ink like a stuck pig.

Here is the lede:

“WASHINGTON (AP) — Far from slowing, the government's deficit spending will surge to a record $1.5 trillion flood of red ink this year, congressional budget experts estimated Wednesday, blaming the slow economic recovery and last month's tax-cut law.”

Just one minor quibble, if you don’t mind. There was no tax cut in December. Congress voted to keep the tax rate unchanged for two years — except for that 2 points shaved off the Social Security tax deducted from paychecks.

Here is is what the CBO said about the “tax cut” effect on projections:

“It also includes the impact of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (referred to in this report as the 2010 tax act), enacted in December, which provides a short-term boost to the economy by reducing some taxes, extending unemployment benefits, and delaying an increase in taxes that would otherwise have occurred in 2011.”

A short-term boost in the economy, you say?

The CBO also projected:

“By CBO's estimates, federal revenues in 2011 will be $123 billion (or 6 percent) more than the total revenues recorded two years ago, in 2009. The continued slow improvement in economic conditions is anticipated to boost revenues from individual income taxes, corporate taxes, and other sources by nearly $200 billion between those two years; however, revenues from social insurance taxes are projected to decline by more than $70 billion relative to their level two years ago, mostly as a result of a one-year reduction in payroll taxes [those 2 points off Social Security tax] included in the 2010 tax act.”

The AP went on to say:

“Wednesday's Congressional Budget Office estimates indicate the government will have to borrow 40 cents for every dollar it spends this fiscal year, which ends Sept. 30. Tax revenues are projected to drop to their lowest levels since 1950, when measured against the size of the economy.”

Well, it is worse than that. The CBO admits its projections are based on the assumptions Congress gives it, and those are hardly worth a wink and a nod.

Among the assumptions CBO enumerated are that Medicare payments to doctors will go down as scheduled. That’s never happened. It assumes jobless benefits will expire as scheduled. Yeah, right. It assumes taxes will go up in 2012 as scheduled and stimulus spending will end.

My favorite assumption:

“Funding for discretionary spending increases with inflation rather than at the considerably faster pace seen over the dozen years leading up to the recent recession.”

Then the CBO explains that, if all of those assumptions are wrong, then:

“By 2021, the budget deficit would be about double the baseline projection, and with cumulative deficits totaling nearly $12 trillion over the 2012–2021 period, debt held by the public would reach 97 percent of GDP, the highest level since 1946.”

It took a worldwide war to achieve that.

Here is what Daniel Mitchell at the Cato Institute had to say about the CBO findings:

"The bad news is that the CBO report shows that federal spending has grown more than twice as fast as needed to keep pace with inflation. But there is some qualified good news. Big increases in tax revenues show that the 2003 supply-side tax rate reductions were very effective in boosting growth and increasing economic output. The dark lining to that silver cloud is that the influx of new revenue may discourage already-timid lawmakers from making much-needed reductions in the burden of federal spending."

No matter how much money we send them, they manage to spend it and borrow more. It's not the revenue. That is up. It is the spending, stupid.