Obama’s budget would add $6.4 trillion to debt
NEW YORK (CNNMoney) — Lawmakers on Friday were handed the official score card on President Obama’s proposed budget for 2013.
The Congressional Budget Office concluded that the president’s budget would add less to the country’s debt than if lawmakers simply extend a number of favored policies, such as the Bush-era tax cuts.
And yet debt levels at the end of the decade under Obama’s budget would remain too high for comfort.
The president’s budget would add $6.4 trillion in deficits between 2013 and 2022, the CBO said.
Under the so-called alternative fiscal scenario, where Congress simply extends a number of favored policies, cumulative deficits would reach nearly $11 trillion.
That president’s proposals would bring debt held by the public to 76% of GDP at the end of the period measured, up from 68% last year.
Debt held by the public includes U.S. bonds bought by investors, but excludes money owed to government trust funds, such as Social Security and Medicare.
Independent deficit watchdogs have been urging lawmakers to put in place a debt-reduction plan to lower public debt to at least 60% by the end of the decade.
One reason why Obama’s budget fails to do so is because it doesn’t adequately address entitlement costs, such as Medicare.
The president has publicly advocated striking a “grand bargain” — which would involve entitlement and other spending cuts as well as tax increases – to reduce the country’s long-term debt burden. But fraught negotiations with House Republicans fell apart over the summer.
The CBO analysis shows that the president’s budget would end up stabilizing the debt — meaning the country’s deficits stop growing faster than the economy. The annual deficit in his proposal would fall to 2.5% of GDP by 2017 — well below the 8.1% projected for this year. But they would climb back to 3% by 2022. And barring any more significant debt reduction plans, deficits thereafter would continue on a northward trek.
Annual spending levels in Obama’s fiscal blueprint average 22.5% of GDP, above the 20.7% historical average. But his budget would put discretionary spending on a downward trajectory, from 8.4% of GDP this year to 5.2% at the end of the decade.
Under the president’s budget the government’s revenue intake would climb to an average of 19.4%, above the 18.1% historical norm and well above the 60-year lows reached during the recession.
Part of the reason for the increase is due to a strengthening economy. But partly it’s due to the estimated $950 billion in new revenue he’d raise from a host of proposals, the largest of which is his call to limit the value of itemized deductions for high-income households, which alone is estimated to raise $520 billion over a decade.
At the same time, he puts forth a number of measures that would shrink tax receipts significantly relative to where they would otherwise be. The most costly is his oft-repeated proposal to make permanent the Bush-era tax cuts for the majority of Americans, followed by a proposal to index the Alternative Minimum Tax to inflation, and expanding stimulus measures and creating new tax cuts for families.
While no president’s budget is ever adopted by Congress wholesale or even in large part, this year there isn’t likely to be any real action on anyone’s budget proposal — including one expected next week from House Budget Chairman Paul Ryan – until after the presidential election in November.
That’s when Congress will face a number of fateful fiscal decisions, such as whether to extend the Bush-era tax cuts and whether to replace nearly $1 trillion in automatic spending cuts that nobody wants but which are scheduled to take effect in January 2013.