The Congressional Budget Office (CBO) today clarified what the Obama Administration thinks about the Bush tax cuts (the cuts enacted in 2001 and 2003). They’d like to keep most of them! And they don’t seem to mind deficit financing them, which is why the extension of the “Bush tax cuts” alone, even without the added interest costs, adds about $2 trillion to the 10-year budget deficit under the Obama budget.
CBO shows that the new official, current-law baseline produces a 10-year deficit of $4.4 trillion. This is $1.3 trillion worse than they forecast in January (see Table 1-3 on pages 6-7), due to the cost of newly enacted legislation ($1.3 trillion, primarily the recovery package) and a deteriorating revenue base (coincidentally, another loss of $1.3 trillion). Partially offsetting those worsening factors was that lower interest rates and inflation reduce government outlays (by $1.4 trillion). (There was another $140 billion added to the 10-year deficit due to “technical changes”.)
Incidentally, CBO’s previous (January) current-law baseline was already $1.5 trillion worse than the current-law baseline the Administration showed in its February budget documents, because CBO had already been more pessimistic than the Administration in their economic forecast.
According to today’s CBO report (see Table 1-5 on pages 12-13), relative to what’s in the books as current law, the President proposes to add $4.8 trillion to the 10-year budget deficit (more than doubling it to $9.3 trillion), in this way:
- $2.1 trillion in net tax cuts ($1.9 trillion of which are extended Bush tax cuts, alone);
- $1.1 trillion in mandatory spending increases, including the refundable portions of new or expanded refundable tax credits not included in the “net tax cuts” figure;
- $600 billion in increased discretionary spending (above baseline’s assumed growth with inflation); and
- $1.0 trillion in higher net interest costs (debt service).
So the biggest single proposal in the Obama budget contributing to the deterioration in the 10-year budget outlook is, contrary to public perception, not big spending on bailouts or stimulus or even longer-term health care reform, and not temporary tax cuts that are designed to provide immediate stimulus to the economy at only near-term cost, but rather permanent extension of most of the Bush (2001 and 2003) tax cuts–with costs that grow dramatically over time. It explains why the Obama budget (according to CBO projections) will not only fail to make trillion-dollar-plus deficits an extraordinary and temporary phenomenon (with the 2019 deficit climbing back to $1.2 trillion), but will fail to stabilize the public debt as a share of GDP (with the ratio exceeding 80 percent by 2019).
President Obama doesn’t have to feel “stuck with” the Bush tax cuts. In fact, Congress will have to write and pass new legislation, which President Obama will have to sign, in order to keep any of the “Bush tax cuts” beyond December 31, 2010. So now that they’re so clearly a central part of the Obama budget, it’s probably time we stop calling them the “Bush tax cuts” and start calling them the ($2 trillion in deficit-financed) “Obama tax cuts.” But we’re still not “stuck with” them.