Here’s OMB director Jack Lew explaining how the Obama Administration’s proposed budget (released this morning) will reduce the budget deficit over the next ten years–cutting it in half by 2013 and by two-thirds by 2020. Problem is that that’s only relative to a "baseline" that builds in a lot of tax cuts that go beyond current law (extended beyond their expiration), and the president’s budget stays away from the major pressures on the federal budget – the growth of Medicare and Social Security spending and the lack of a solid enough revenue base to keep up with that spending.
I think it’s a fitting "Valentine’s Day" budget because it only pays "lip service" to the work of the president’s fiscal commission, writes a lot of "love notes" to those enduring Bush/Obama tax cuts, and still contains an awful lot of red ink.A few quick observations from my (admitted) Bush/Obama-tax-cuts-obsessed perspective:
- The "lip service" the Administration pays to the fiscal commission comes from very skinny, non-luscious lips (see Ezra Klein on this point!); absolutely nothing in the president’s message and only a mention about "reset[ting] the debate" in the chapter on the "sustainable fiscal path."
- Budget does not achieve sustainability (below 3% of GDP deficits) by the end of the budget window; it is slightly above by 2020-21 (see Table S-1). Problem with "almost sustainable" is that that’s still unsustainable.
- Same table (S-1) shows as memo that IF we could pay for extended AMT relief we would get to sustainability by the second half of the budget window. Just like IF we could pay for any other ongoing tax cuts or spending that we haven’t been in the practice of paying for.
- Table S-2 makes it look like there is $2.2 trillion (over 10 years) in deficit reduction proposed in the president’s budget, including $665 billion in revenue raisers. But that’s relative to their "adjusted baseline" which already assumes nearly $3.1 trillion in extended tax cuts that are not in current law (the "middle-class" cuts and 2009 estate tax law and AMT relief; see Table S-7). In other words, their proposed spending cuts or revenue raisers fall short of even paying for the assumed tax cut extensions they are implicitly proposing (tucked away into their "adjusted baseline"), by nearly $1 trillion.
- And although they want to be seen as more honest in not adding in all of the Bush/Obama tax cuts into their "adjusted baseline," in the memo to Table S-2 they still try to characterize letting the high-end Bush tax cuts expire (after the current two-year extension) as deficit reduction ("costs avoided").
- Table S-8 lays out their tax proposals as containing just around $392 billion (over 10 years) in tax cuts, while tax increases ("revenue changes and loophole closers") total $356 billion. On net this looks as if they come close to revenue-neutral tax policy, but of course that doesn’t count the over $3 trillion in extended tax cuts already built into their baseline.
- Note we are back to the same old story: if Congress went home and didn’t pass any extensions of tax cuts, and the president didn’t sign any extended tax cuts into law (i.e., if they stopped doing the kind of "bipartisan compromise" they did in the lame duck session), we’d do way better at reducing the deficit than if we adopted the policies the president’s budget proposes.