House Democrats Release Alternative FY 2015 Budget
This blog has corrected the amount of Medicare savings in the budget. It previously said $50 billion, but that included the cost of repealing the Medicare sequester.
With Budget Committee Chairman Paul Ryan's (R-WI) budget likely coming to the House floor this week, it also means that alternative budgets are being released. The Progressive Caucus released their budget before Ryan about three weeks ago, and now the House Democrats have joined them. Under dynamic scoring, the House Democrats' budget would reduce annual deficits to between about 2.5 and 3 percent of GDP over the next ten years and put debt on a slight downward path by 2024, when it would be 70 percent of GDP. However, debt is on an upward path from 2019 until 2022. Throughout the ten-year window, the budget has annual spending levels between 21 and 22 percent of GDP and revenue at about 18-19 percent. Without the dynamic scoring, debt would be on a relatively stable path* and reach 73 percent by 2024.
Policy-wise, the budget is similar to the President's budget, although it declines to endorse many of the President's specific policies. On revenue, it assumes the amount of revenue increases in the President's budget without endorsing the specifics except to support the extension of the refundable credit expansions that expire in 2017 and an additional expansion of the Earned Income Tax Credit for childless workers. The budget assumes savings from immigration reform as the President does. It also adopts the President's defense spending levels, which are in between the pre- and post-sequester caps, and some of his investments in infrastructure and pre-K education. In contrast to the President, the House Democratic budget repeals the non-defense sequester entirely and cuts off all war spending after 2015, the latter assumption being somewhat questionable as a practical matter. In addition, the budget includes fewer savings from changes to health programs than the President's budget, with only about $144 billion in savings coming from changes to Medicare in contrast to the President's net savings of $290 billion.
A concerning aspect about the budget is that it appears to include even more dynamic scoring than the Ryan budget did with its fiscal dividend. The House Democratic budget assumes GDP that is $900 billion, or about 3.4 percent, higher in 2024 than CBO does. It appears that the budget attributes this greater economic growth to immigration reform, which CBO estimated could increase GDP by 3.3 percent in 2023 and 5.4 percent by 2033. Ignoring the boost from immigration reform, the budget would leave debt at 73 percent of GDP in 2024 and on only a very slight downward path. As we said about Ryan's fiscal dividend, these more uncertain savings should not be counted in a budget's official numbers, and create a dangerous precedent.
While it is good to see lawmakers offering up deficit reduction plans, there are reasons to be concerned about the House Democrats' alternative. The proposal only barely puts debt on a downward path and relies heavily on dynamic scoring to achieve savings. Finally, the budget is much more specific on which deficit-increasing policies it supports than which deficit-reduction policies it envisions.
We will see how other alternative budgets compare.
*Because of the alignment of the calendar, the years 2022 and 2024 are asymmetric from a fiscal perspective. Since October 1, 2022 falls on a weekend, payments are shifted from FY 2023 to FY 2022 (October 1 to September 30), creating an artifically high deficit year in 2022. Conversely, October 1, 2023 falls on a weekend, shifting payments from FY 2024 to FY 2023 (October 1 to September 29) and making 2024 an artifically low deficit year. Corrected for these timing shifts, the House Democrats' budget would be on a stable debt path in those years rather than a very slight downward path.