The Congressional Budget Office (CBO) estimates that under President Obama’s proposed budget for 2013 deficits would drop for a few years but then rise again, totaling $6.4 trillion over the coming decade. Federal debt held by domestic and foreign investors would increase to $18.8 trillion by the end of 2022 – equaling 76 percent of the Gross Domestic Product, up from 68 percent at the end of 2011.
The new analysis, released Friday by CBO, supports the concern voiced by The Concord Coalition in February that the President’s budget, despite tax reform proposals and some other positive elements, fails to chart a sustainable long-term course for the country.
As the CBO analysis confirms, the biggest policy initiative in the administration’s budget is the proposal to permanently extend the 2001 and 2003 tax cuts for all taxpayers except for those at the top of the income scale. The cost: $3.5 trillion, plus hundreds of billions of dollars in additional interest payments.
The administration also wants to reduce the future impact of the alternative minimum tax and make other changes in certain tax and spending policies. All told, the budget would directly add to federal borrowing by $2.9 trillion and require $.6 trillion in additional interest payments, according to the CBO.
Conflicting claims of “deficit reduction” and “deficit increases” cloud the current federal budget debate. These claims differ because they depend entirely on the projections that are used as starting points for the calculations. The administration is starting with projections that enable it to claim to be reducing deficits where the CBO, focusing on a different baseline, sees an increase.
Such confusion related to starting points is why Concord urges elected officials and the public to focus on the bottom-line figures. The new CBO analysis shows federal debt held by investors, for example, rising from $10.1 trillion at the end of 2011 to $15.2 trillion in 2017, and continuing on to $18.8 trillion by the end of 2022.
The CBO notes that Obama’s budget does not include the automatic spending reductions that are required by last year’s Budget Control Act because of the failure of the congressional “super committee” process last fall. This omission, CBO says, would boost spending by $1 trillion over 10 years.
The administration, however, has proposed alternative measures to replace the automatic cuts. If Congress were to approve those alternatives, the savings could offset the loss of the automatic cuts.
In making its latest projections, the CBO used somewhat more pessimistic economic assumptions than the administration, especially regarding wages and salary income. This caused CBO to anticipate both lower revenues and lower federal spending.
But the overall differences on the bottom-line numbers for the next decade are not large. Ideally, this should make it easier for elected officials in both parties to agree that, despite last year’s spending cuts, a more comprehensive approach to long-term fiscal reform is needed.
Using the CBO’s new data and reasonable assumptions about future policy decisions, Concord has updated its Plausible Baseline projections.