An Overview of the President's Budget
While we will have detailed analysis of various parts of the President's budget throughout the week and into next week, it is important to first show the big picture of where the budget takes us. The President's budget contains a $1.8 trillion deficit reduction package that is meant to reflect the final White House offer during the fiscal cliff negotiations. When other initiatives and repeal of the sequester are included, the total savings are $1.4 trillion compared to OMB's adjusted baseline.
The budget starts by filling in the policies necessary to reach the savings targets in the last fiscal cliff offer. It then adds in other initiatives, such as increased infrastructure spending and universal pre-school, and other revenue increases and spending cuts. The budget contains ten-year deficits of $5.3 trillion.
Overall, the budget puts debt on a downward path as a percent of GDP by the end of the ten-year window although at a higher level than we have recommended. Debt does rise initially from 72.6 percent in 2012 to 78.2 percent by 2015 before falling steadily to 73 percent by 2023. As you can see below, debt is slightly higher than OMB's adjusted baseline in the near term due to upfront infrastructure and jobs measures plus the cancellation of the sequester, but it falls below the baseline by the end of the projection window.
The President’s budget is able to put the debt on a declining path by reducing deficits over time – from as high as 6 percent of GDP in 2013 to 2.4 percent by 2017 and 1.7 percent by 2023 (with revenues at 20 percent of GDP and spending at 21.7 percent). At these levels, the economy is able to grow faster than nominal debt accumulates. Importantly, though, estimates are quite sensitive to projections. In rough terms, we believe deficits would be 2.2 percent of GDP in 2023 if CBO were estimating.
Source: OMB, CBO
The budget is a good contribution to the debate, building off of the bipartisan negotiations from last December. We would like to have seen somewhat greater deficit reduction to ensure that debt would be on a downward path, but the budget provides a good sign for future negotiations. As CRFB president Maya MacGuineas said in a press release earlier today:
With the President’s budget and both the Senate and House-passed budget resolutions all putting debt on a downward path as a share of the economy for the first time, I am hopeful that productive and bipartisan budget discussions can resume in earnest. Now is the time for lawmakers to put everything on the table, bridge their differences, and enact a plan that will finally put our fiscal house in order.
In the coming days, we will have further analysis of what is behind the numbers -- how the budget gets its savings -- plus a comparison to the budget resolutions that passed each chamber of Congress.