I’m Back
March 8th, 2010 . by economistmomBoy– that was awful being disconnected for so long (even longer than during Snowmageddon!). I’ll be back posting something of substance tomorrow (Tuesday) I hope. Can’t believe I missed CBO’s (preliminary) analysis of the President’s budget. I’ll write about it tomorrow, but you won’t be surprised about what I’ll emphasize. CBO Director Doug Elmendorf already pointed it out in his blog post from last Friday (emphasis added):
Under the President’s budget, the cumulative deficit over the 2011–2020 period would equal $9.8 trillion (5.2 percent of GDP), $3.8 trillion more than the cumulative deficit projected in the baseline. Of that difference, roughly $3.0 trillion stems directly from proposed changes in policy and another $0.8 trillion results from additional interest on the public debt. By far the largest budgetary impact would stem from the President’s proposals to index the alternative minimum tax (AMT) for inflation and to extend various tax provisions contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). Over the next 10 years, those policies would reduce revenues and boost outlays for refundable tax credits by a total of $3.0 trillion. Other policies would have smaller but still significant effects on the budget and would largely offset one another.
Diane,
I’m not so sure about the spin here. Obama has put a bunch of revenue raisers in his budget that I think (I’ll have to go back and check the numbers) leave revenues as a percent of GDP very close in his budget to what they would be in the CBO baseline. What you may think of the advisability or feasibility of some of them is a separate question. Where his budget differs dramatically from the CBO baseline is on the subject of spending. The old CBO baseline (pre-the 2011 budget release) had spending running about 22 to 23 percent for most of the budget period. The new analysis has it average 24.1 percent over the 10-year period. That’s about 1.0 to 1.5 pp difference or about 2 trillion over the 10 year window.
Director Elmendorf’s quote is correct as far as it goes but it ignores the costs of higher spending and ignores the additional revenue raisers in the budget.
Just to build on my point, have a look at this post by Keith Hennessey. It basically shows the point I was making. Relative to the current law baseline (CBO), the 2015 Obama budget is 1pp lower on revenue and about 1.5pp higher on spending.
So the argument that the issue is primarily taxes isn’t really supported by the data.
Oops, here’s the link
http://keithhennessey.com/2010/03/09/bbg-baselines/