April 17, 2014

The “Spare Change” in the Obama Budget

The Obama Administration released the "final installment" of their FY2010 budget this week. The summary tables can be found here. On his blog, OMB director Peter Orszag explains what's changed from the February release.

Although the Administration has not revised the economic assumptions that go into the budget projections since their February release, they've still had to adjust downward their revenue forecast. This mostly stems from so-called "technical revisions" which reflect new thinking by the Administration about how much revenue the government will receive under the same macroeconomic forecast used in their initial budget document.

They now estimate that overall federal revenue will be less than was projected in February -- between $30 billion and $50 billion in each of this year and next, and $124 billion lower over ten years. The interest costs associated with the combined technical revisions (on net more than entirely accounted for by the revenue revisions) alter the 10-year outlook by $193 billion. Thus, the estimated deficits under the President’s proposals are now about $90 billion higher in each of FY2009 and FY2010, yet only about $140 billion higher for the full ten-year period, compared with the Administration’s previous estimates.

As a result of these technical revisions, the Administration has (already) had to look for a new source of revenue dedicated to the health reserve fund beyond the original proposal to limit itemized deductions, as explained in their budget document (emphasis added):

Health reserve fund. The Administration has made a historic commitment to health reform by putting on the table $635 billion in savings to be devoted to paying for health reform this year. The health reserve fund is almost exactly the same size as it was in the in the February overview and is still about evenly divided between Medicare and Medicaid savings and additional revenue. But, as I have discussed elsewhere, the composition of the additional revenue measures has now changed somewhat, with the addition of new enforcement measures and loophole closers to make up for technical re-estimates of the original proposal.

To me, it's sort of like looking for spare change under the couch cushions, when what you really need to do is get off the couch and find a higher-paying job -- and you don't even know if you can count on hanging onto your lower-paying one. (The proposal to limit itemized deductions, for one, has plenty of political problems besides the fact that it might not be raising as much revenue as we previously thought.)

One of the big fiscal-policy lessons I've learned in the past year while writing my EconomistMom.com blog is that changing policymaker and private citizen attitudes about the need to raise more revenue, and how to best accomplish it, is very hard to do--even with a new president who was elected to bring "change" (speaking of "spare change").

--Diane Lim Rogers