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Tuesday, March 31, 2009

"Obama Budget Reduces Deficit"

The Center on Budget and Policy Priorities says that, contrary to what you may have heard, the Obama budget "would reduce federal deficits by about $900 billion over the next ten years compared to current budget policies." Note also that, relative to their "realistic baseline," the deficit is larger in the immediate short-run than the baseline projection (but by enough?), and smaller in the longer run (any truly long-run solution to the budget problem will require us to reform health care and reduce escalating costs):

Obama Budget Reduces Deficit by $900 Billion Compared to Current Budget Policies, by Kathy Ruffing and Paul N. Van de Water, CBPP: Contrary to some claims, President Obama’s 2010 budget would reduce federal deficits by about $900 billion over the next ten years compared to current budget policies.  The $900 billion is the difference between deficits over the next decade under the President’s budget, as estimated by the Congressional Budget Office (CBO), and projected deficits under a realistic assessment of current budget policies. (See figure below.)

Some critics charge that Obama’s budget is fiscally irresponsible, and they cite CBO’s estimate that, under it, deficits would total $9.3 trillion over the next decade.  They fail to note, however, that these future deficits result from the existing budget policies that Obama inherited — not those that he is proposing.  Ironically, some of these same critics supported the large tax cuts and spending increases of recent years that helped convert the surpluses of the late 1990s into the record deficits that we face today and in the coming decades.

In fact, deficits would be $900 billion higher over the next decade under current policies than in Obama’s budget.  That’s because, in the budget plan that he released in late February, the President includes a package of spending and tax proposals that reduce future deficits by that amount.

Discussions of the budget outlook typically begin with the budget “baseline”...  In building the baseline, CBO follows rules that ... generally assume that current laws affecting taxes and mandatory spending will continue without change.

Sometimes, however, current law diverges from current budget policies.  This year, the official budget baseline incorporates several especially unrealistic assumptions.  In particular, the latest baseline assumes that Congress will allow the 2001 and 2003 tax cuts, relief from the Alternative Minimum Tax, and other temporary tax provisions all to expire.  It also assumes that the reductions in physician fees called for under Medicare’s sustainable growth rate formula — including a 20 percent reduction in 2010 — will actually take effect, even though Congress has stepped in to prevent such reductions since 2003.  Finally, the baseline extrapolates enacted defense appropriations for 2009, which represent only a portion of the amount needed for operations in Iraq and Afghanistan this year and in coming years.  ...

Budget experts have been saying for a number of years that the official baseline departs sharply from reality. ... In February 2009, CBO issued alternative budget scenarios that offered a more accurate representation of current budgetary policy. [2]  We rely here on elements of those alternative budget projections and have updated them to be consistent with CBO’s new March 2009 baseline...

In our projection of the deficit under current budget policies, we adjust the official CBO baseline... These adjustments are detailed in the appendix table.  Cumulatively, they point to deficits of $10.2 trillion over the next 10 years...  CBO estimates that the cumulative deficit from 2010 to 2019 under the President’s proposals would total $9.3 trillion.  Compared to our realistic baseline, the President’s proposals would reduce projected deficits by about $900 billion over the 2010-2019 period. [4]  The deficit would be higher in 2009 and 2010, however, because the budget sets aside an additional $250 billion for stabilization of financial markets. ...

    Posted by on Tuesday, March 31, 2009 at 11:07 PM in Budget Deficit, Economics | Permalink  TrackBack (0)  Comments (7)



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