CBO Releases Full Analysis of President's Budget
The Congressional Budget Office has released its full analysis of President Obama's FY 2012 budget request. While the new report goes into greater detail, it contains no baseline changes or budget projection changes from the preliminary analysis CBO released in March. The main new analysis in this report is the economic analysis of the President's budget in which CBO analyzes what will happen to fiscal policy under the budget request.
CBO goes into two separate analysis of the President's request: one estimating the short-term effects through 2016 and another estimating the effects from 2017-2021. Using its models, CBO finds that the President's policies will likely have an economic boost relative to current law from 2012-2016 and lower economic output from 2017-2021. From 2012-2016, CBO finds that the President's spending policies would amount to an "increase in transfer payments and reductions in purchases of goods and services." This, along with the lower tax rates scheduled relative current law leads CBO to project an overall economic stimulative effect, but would nevertheless increase the cost of his policies between $10 billion and $30 billion in this time frame.
From 2017-2021, CBO projects that President Obama's policies would decrease economic output, mainly due to the potential loss of capital stock primarily resulting from larger then current law projected deficits. While the lower tax rates would likely mitigate this effect, when combined with decreased spending and increased deficits the result is still a net reduction in economic output under this projection. CBO projects that these policies could cost up to $217 billion on the one hand, or could actually reduce fiscal deficits by as much as $8 billion on the other. The large range stems in part from different economic modeling used.
Overall, while President Obama's FY 2012 budget request is still rather lackluster when it comes to deficit reduction, he deserves significant credit for releasing his new budget framework last week, laying out $4 trillion in deficit reduction over the next 12 years. In many ways, the President's new framework is a complete revision of his FY 2012 budget request and will receive much of the focus going forward.