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CBO: Administration’s Proposed Tax Cuts Basically “Pay for Themselves” Under Administration’s Assumptions

March 18th, 2011 . by economistmom

The Congressional Budget Office’s (preliminary) Analysis of the President’s Budget just came out.  Will have more to say after a more careful read this weekend, but a few things immediately jump out from the main tables in the report:

  1. Deficits under the President’s budget proposals as estimated by CBO are more than $2.2 trillion higher than estimated by the Administration.  (Ten-year deficits are $9.470 trillion according to CBO, vs. $7.205 trillion according to the Administration’s Office of Management and Budget.  See bottom lines on Table 3, page 18.)
  2. CBO estimates the total cost of the President’s proposals to be $2.733 trillion over ten years.  The great bulk of this (85%) is the cost of proposed tax cuts, at $2.331 trillion–without including any additional interest costs associated with these tax cuts.
  3. In fact, if you decompose the cost of the spending proposals into mandatory, discretionary, and net interest effects, you find that the contribution of tax cuts is more than 100 percent of the total cost. Again from Table 3, the President’s mandatory proposals cost $1.335 trillion over ten years, and his discretionary proposals save $1.452 trillion over ten years, for a net $117 billion in savings without interest.  In other words, the higher net interest costs of $519 billion over ten years are due entirely to the deficit-financed $2.3 trillion in new tax cuts.
  4. It is only coincidental that the difference between CBO’s estimate of deficits under the President’s proposals and the Administration’s (OMB’s) own estimate ($2.2 trillion) is almost identical to CBO’s estimate of the cost of the tax cut proposals ($2.3 trillion).  But it effectively means that through the Administration’s rosier assumptions (which I hope to investigate further), they are implicitly suggesting–or at least not contradicting–the notion that tax cuts pay for themselves.  On the Administration’s part there seems to be some implicit denial about what this tax-cut-monopolized budget means for the deficit.

Oops!  Somehow this doesn’t seem like a very good start on our path to fiscal sustainability.

One Response to “CBO: Administration’s Proposed Tax Cuts Basically “Pay for Themselves” Under Administration’s Assumptions”

  1. comment number 1 by: Jesse

    The only way we can balance the budget is through a change in our expectations of what the role of the Federal Government ought to be. We need to shift many of the responsibilities that the Federal Government took from the States back to the State level. Abolish the Dept. of Education, stop the war on drugs and allow the States to set their own rules without Fed interference, etc. We also need to change our attitude towards the social/welfare programs as this spending is unsustainable.The right must realize that we cannot afford to have military bases in well over a 100 countries around the world and we must cut the military (offense) budget if we want to balance our budget.

    With trillions of yearly deficit spending we won’t please people if we decide to cut spending to live within our means. But it is a necessity as this debt spending is not only unsustainable but we’ll soon default on our minimum debt obligations.

    Without artificially boosting GDP numbers through major credit and deficit spending the US would have a very alarming debt to GDP ratio.

    http://www.wtffinance.com/2011/03/the-gdp-bubble-and-why-debt-to-gdp-is-misleading/