Key Fiscal Metrics in the President's Budget
With President Obama's FY 2013 budget out in the open for review (see our initial reaction and analysis) we will now more closely examine many aspects of the budget in a blog series over the coming week. Our first blog will introduce the broad framework.
Under President Obama's FY 2013 budget, due to a combination of policies designed to raise revenues and improve economic growth, revenue will rise nearly two percentage points from 15.8 percent of GDP to 17.7 percent in 2013. Beyond that, revenue will continue to rise, reaching 20.1 percent by 2022.
Additionally, due to the improving economy and various deficit reduction policies, outlays will also start to fall. Although they will rise from 24.1 percent of GDP in 2012 to 24.3 percent in 2013, they will begin to gradually decline to 22 percent by 2018. However, due to pick-up in the growth rate of health care and Social Security spending, outlays will begin to rise again to 22.8 percent in 2022.
To put the previous numbers in context, during the previous 40 years, spending and revenue have averaged about 21 and 18 percent of GDP, respectively.
Deficits will fall over the next five years as spending and revenue converge, but they continue to remain too high to put our debt on a downward path. They will still be quite large in 2013--5.5 percent of GDP (although this is down from 8.5 percent in 2012)--and will remain at or above three percent through 2017. Deficits will then reach a low of 2.7 percent in 2018 and stabilize at 2.8 percent thereafter.
President Obama's budget stabilizes the debt at 76.5 percent of GDP in 2018, and it stays at or below that level through 2022 after reaching a peak of 78.1 percent in 2015. While these numbers are an improvement over the CRFB Realistic Projection, stabilizing the debt is only part of the solution--we need a plan which puts our debt on a downward path, something that this budget does not do. It is also very likely that debt will actually begin to rise past the 10-year budget window due to increasing health-care and Social Security costs.
President Obama deserves credit for proposing specific policies to stabilize our debt without resorting to rosy economic assumptions or assumed offsets, but he does not go far enough. As CRFB President Maya MacGuineas said earlier today:
[The President's budget] does stabilize the debt, but at too high a level and in a way that isn’t robust over the long-run. Still, this budget represents a positive step in the fiscal conversation, and I’m hopeful it will help to push for a broader debt deal this year.