September 1, 2014

Washington Budget Report: May 21, 2013

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CBO and OMB Very Close in Scoring Obama’s Budget

Last Friday the Congressional Budget Office released its scoring of the President’s budget using CBO’s own baseline and economic projections.

The bottom-line results confirm the overall composition of spending and revenues projected by the President’s Office of Management and Budget (OMB) along with the slight downward trend in projected debt as a share of GDP toward the end of the 10-year budget window (2014-2023).

While the two agencies differ on the amount of “deficit reduction” contained in the President’s budget (CBO says $1.1 trillion while OMB says $1.8 trillion), what counts is where spending, revenues, deficits and debt all end up as a share of the economy (GDP). On these key metrics, CBO and OMB come out in a very similar place.

According to both agencies, the President’s budget would spend $46.5 trillion over the next 10 years. CBO estimates that revenues would be $41.3 trillion while OMB puts the number at $41.2 trillion. The 10-year deficit under CBO’s scoring of the President’s budget ($5.2 trillion) is thus lower than OMB’s projection ($5.3 trillion), but remarkably close.

Viewed as a percentage of the economy, the numbers are also very similar although OMB projects stronger economic growth toward the end of the period. On average, CBO projects that revenues would equal 19.4 percent of GDP over the next 10 years under the President’s budget, while OMB projects 19.1 percent.

In both estimates, the trend is slowly upward during the second five years. Spending under the President’s budget would average 21.8 percent of GDP according to CBO, versus 21.6 percent under OMB’s scoring.

More significant than the 10-year totals is that CBO and OMB agree on the trend that would result under the President’s budget. In both projections, spending would remain relatively flat and revenues would slowly increase, leading to stable deficits and a slowly declining debt-to-GDP ratio. CBO estimates that after an increase to 77 percent of GDP in 2014, the ratio would fall to 69.8 percent in 2023.

The CBO analysis does not extend beyond the 10-year budget window so it does not make any projections as to whether the policies in the budget would continue to improve the fiscal outlook over the long term. Nor does it draw conclusions on the likelihood that certain policies can be achieved or sustained.

Following release of the report, CBO Director Douglas Elmendorf posted an informative blog that graphically comparing the President’s budget, the House budget and the Senate budget to the current-law CBO baseline.

Health Care Reform Plans Seek Aggressive Cost Restraint

Any credible health care reform plan that Congress passes must include a meaningful target for restraining long-term cost growth that can be enforced.

A number of recent bipartisan health plans, as well as budgets proposed by elected officials in Washington, are optimistic and even “remarkably ambitious” on this score, according to Concord Coalition Policy Director Joshua Gordon. They envision even greater cost restraint than the Affordable Care Act (ACA), which was itself considered quite ambitious in this regard when it was passed three years ago.

In the final blog post of a three-part series on the recent health care reform plans, Gordon says their tighter targets on cost growth came in response to a recent slowdown in health care inflation as well as projected reductions in Medicare provider payments because of the ACA.

Yet even more important than where cost-restraint targets are set, he writes, is that some sort of enforcement mechanism must be used to ensure that they are actually met.

Furthermore, it is critical that health care reforms restrain costs in the private sector as well as in government programs. To their credit, Gordon says, each of the four recent bipartisan plans by policy experts takes that into account.

And while long-term cost restraint is essential, Gordon notes that many of the reform proposals could produce savings that the Congressional Budget Office should be able to score in its 10-year budget window.

Budget Drivers: Aging, Health Care and Interest

This chart shows changes in the federal budget through 2023.

Projections from the Congressional Budget Office last week confirm that the most powerful factors in the current budget dynamic are aging, health care costs and interest on the growing federal debt – all things that Concord Coalition Executive Director Robert L. Bixby says political leaders seem the least interested in doing anything about.

CBO’s current-law baseline for the next 10 years shows discretionary spending, including defense, shrinking from 7.6 percent of the economy (GDP) to only 5.5 percent, which would be the lowest level on record. Except for Social Security and the major health care programs, mandatory spending is also projected to shrink.

But those savings would all be canceled out by higher spending on Social Security, health care programs and interest, all of which would grow faster than the economy – by a cumulative 3.6 percent of GDP.

Under current law, the deficit would shrink over the next decade because of increased revenues. The debt, however, would still be 74 percent of GDP and rising in 2023.

“The lesson for policymakers is clear,” Bixby writes in a new blog post. “Even with remarkable restraint on discretionary spending and higher taxes on ‘the rich’ from the fiscal cliff deal, not enough has been done to put the budget on a sustainable path. Nor will it ever be enough if those are the boundaries of deficit-reduction efforts.”

Candor, Bipartisan Cooperation Needed

While there are plenty of distractions these days in Washington, elected officials should try to remember that much remains to be done to meet the nation’s fiscal challenges.

“Members of Congress in both parties need to stop playing make-believe with voters and negotiate a responsible federal budget,” writes Paul Hansen, western states regional director for The Concord Coalition, in a recent op-ed column.

He says the budget plan recently released by Alan Simpson and Erskine Bowles provides a useful bipartisan model, proposing more than $2 trillion in additional deficit reduction over the next decade – and cutting interest costs by another $350 billion.

Hansen also urges Congress to return to “regular order” in its deliberations on the budget for the coming year and beyond.