More Analysis of the President's Budget

On Friday, the Congressional Budget Office released its Preliminary Analysis of the President’s Budget. (Last week we offered a few graphs and a short analysis in this blog post). 

The Preliminary Analysis offers a taste of what will come later this month when CBO releases their full analysis of the President's Budget. This version includes significantly less details, does not provide comprehensive estimates of all the President's proposals (in some cases, they simply take OMB's estimates as "placeholders"), and relies on CBO's January economic assumptions (which they will update soon).

The analysis does, however, attempt to estimate the effects of the President's proposals -- and the results aren't pretty.

According to CBO's projections, under the President's budget, debt held by the public will grow to 90 percent of GDP by 2020. That is a whole 13 percent higher than what OMB estimates and 22 percent higher than under CBO's baseline. And it is a level identified as dangerous by economists Carmen Reinhart and Kenneth Rogoff (see this blog post for more detail).


CBO's estimates are far more pessimistic than OMB's for at least three reasons. First, OMB's GDP estimates are more generous -- and this higher denominator in the debt-to-GDP ratio accounts for roughly half the difference. Second, CBO's baseline assumes roughly $500 billion more in deficits, over the next decade, than does OMB's current law baseline (these differences also stem mainly from economic assumptions). And finally, CBO estimates the President's policies will cost about $700 billion more, on net, than OMB does.

See a break down of the policies here:

OMB and CBO Estimates of 2011-2020 Costs of Provisions in President's FY 2011 Budget (billions)
BEA Baseline $5,472 $5,984
Renew 2001/2003 Tax Cuts for Families Making Over $250,000 a Year (Revenue Effects Only) $2,167 $2,154
AMT Patches $659 $577
Limit Itemized Deductions to the 28% Rate -$291 -$289
Reform International Tax Systema -$122 -$122
Impose a "Financial Crisis Responsibility Fee"a -$90 -$90
Refundable Tax Creditsb $405 $401
Net Effect of Health Reforma -$150 -$150
Freeze Medicare Physician Payment Rates $371 $286
Pell Grants Expansionc $194 $197
Student Loan Reform -$49 -$67
Program Integrity Provisionsd $132 n/a
Total Discretionary Proposals (Including "Placeholder" Reductions in War Spending)e -$693 -$152
Other Tax and Spending Intitiatives
$148 $222
Net Interest $643 $808
Deficit Estimate $8,532 $9,761

a In some cases, due to insufficient detail, CBO relied on OMB's cost/savings estimates.
b Includes refundable portion of all proposed tax credits, especially from the renewal of the 2001/2003 tax cuts.
c Excludes $177 billion increase in mandatory spending resulting from moving Pell grants from a discretionary program to a mandatory program.
d Most program integrity savings cannot be scored by CBO, since they first require the appropriation of discretionary funds. Additionally, scorekeeping conventions prohibit the scoring of mandatory savings unless the authorizing language is modified or appropriations language substantively changes the program.
e Although CBO and OMB project similar discretionary spending levels, OMB projects higher discretionary spending in its baseline, resulting in greater savings under its budget. 

While the ten year path for outlays is roughly the same between estimates, OMB expects about $2 trillion more in revenue to come in over ten years. The CBO deficit path remains consistently higher than OMB's over the next decade, never falling below $724 billion (in 2014). The deficit path over the next decade, according to CBO, differs from OMB's in that it is consistently higher, sometimes by as much as alomst 1.5 percent of GDP. The deficit as a percent of GDP hits a low of 4.1 percent in 2014 before climbing steadily to 5.6 percent by 2020. This is important not only because of the unsustainable fiscal path it illustrates, but also because it diverges notably from the President's stated goals. In his budget, the President proposed a specific budgetary goal: stabilizing the debt-to-GDP ratio by 2015, or dropping that number down to around 3 percent. The President's budget, according to OMB, would bring the deficit down to 3.9 percent by 2015, and they assumed additional deficit-slashing would occur with the help of a newly created fiscal commission. CBO's estimate of a 4.3 percent deficit in 2015 is significantly greater than OMB's estimate, and it is unlikely the work a commission could affect deficits at such a level.

OMB and CBO Estimates of Revenues, Outlays, and Deficits under the President's FY2011 Budget (billions)
Fiscal Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ten-Year
 OMB $2,567      $2,926 $3,188 $3,455 $3,634 $3,887 $4,094 $4,299 $4,507 $4,710 $37,268
 CBO $2,461 $2,807 $3,095 $3,341 $3,504 $3,693 $3,869 $4,031 $4,212 $4,417 $35,429
 OMB $3,834       $3,755 $3,915 $4,161 $4,386 $4,665 $4,872 $5,084 $5,415 $5,713 $45,800
 CBO $3,802 $3,722   $3,842 $4,065 $4,297 $4,587 $4,808 $5,032 $5,364


Deficit (dollar)
 OMB $1,267 $828 $727 $706 $752 $778 $778 $785 $908 $1,003 $8,532
 CBO $1,341     $915 $747 $724 $793 $894 $940 $1,001 $1,152 $1,253 $9,761
Deficit (GDP)
 OMB 8.3%      5.1% 4.2% 3.9% 3.9% 3.9% 3.7% 3.6% 3.9% 4.2% 4.5%
 CBO 8.9%         5.8% 4.5% 4.1% 4.3% 4.7% 4.7% 4.8% 5.3% 5.6% 5.2%

The CBO will release a more in-depth analysis of the President's budget in the coming weeks. If this preliminary analysis is any indication of what we may see, the numbers are not pretty. The time is now for the Administration to get serious about the fiscal picture over the next decade.