Analysis of the President’s Budget
CBO has updated its analysis of the policy proposals contained in the President’s budget to incorporate details on some of the proposals that were made available with the release of the President’s full budget proposal on May 7th.
The results of CBO’s updated analysis are similar to those released in March. CBO now estimates a 10-year deficit of $9.1 trillion under the President’s policies—about $130 billion lower than it estimated three months ago (a difference of about 1.4 percent of the cumulative deficit over the period). That difference reflects the details of the proposals and some technical changes in CBO’s estimates of the proposals. As with the March report, this analysis incorporates revenue estimates from the Joint Committee on Taxation (JCT). CBO has not updated its baseline budget projections or its economic forecast since the preliminary analysis of the President’s budget was released in March.
CBO’s and the Administration’s estimates of the President’s policies are very similar for 2009, but CBO’s estimate of the deficit over the next 10 years is $2 trillion higher. Most of that gap results from underlying differences in the two baselines.
Under the president’s policies, the deficit in 2009 would total $1.8 trillion and equal 13.0 percent of gross domestic product (GDP), CBO estimates. In 2010, the deficit would measure 9.9 percent of GDP, or $1.4 trillion, CBO estimates. The cumulative deficit over the 2010–2019 period would equal $9.1 trillion (5.2 percent of GDP), more than double the cumulative deficit projected under the current-law assumptions embodied in CBO’s March baseline. As a result, debt held by the public would rise from 57 percent of GDP in 2009 to 82 percent of GDP by 2019.
Under current law, revenues would grow from 15.5 percent of GDP in 2009 to 19.9 percent of GDP in 2013. Much of the projected increase in revenues occurs because of the expiration of certain provisions of the 2001 and 2003 tax cuts. Under the President’s proposals, revenues would grow somewhat less quickly and would remain near 19.0 percent beyond 2013, slightly above the average over the past 40 years of 18.3 percent. However, they would be about $2.0 trillion lower than the revenues projected under current law over the 2010–2019 period. Of that amount, modifying and extending provisions of the 2001 and 2003 tax cuts would have the largest effect.
Outlays under the President’s policies would fall as a percentage of GDP over the next few years, from 28.5 percent in 2009 to 22.6 percent in 2012, after which they would begin rising largely because of climbing health care spending and increasing debt-service costs, reaching 24.5 percent in 2019—well above the average of 20.7 percent over the past 40 years. Those figures are virtually unchanged from what CBO estimated under the President’s initial budget request in March.
CBO has also analyzed how the President’s proposals would affect the economy (and then, indirectly, the budget). Estimates of economic effects depend on many specific assumptions, so CBO’s analysis used a number of different models of economic behavior and the structure of the economy.
The President’s proposals would raise the level of output by between 0.8 percent and 1.0 percent, on average over the 2010 to 2014 period, CBO estimates. Those estimates incorporate both supply-side effects (influences on the economy’s potential output) and demand-side effects (temporary movements of output relative to its potential level). The models that CBO used to estimate those overall economic effects are not well-suited to projecting the effects of changes in demand beyond five years. However, CBO also estimated the supply- side effects alone, employing a wider variety of models for which projections can be extended over a longer period. For a range of plausible assumptions, the supply-side effects of the President’s proposals would imply output from 2015 to 2019 that is, on average, 0.3 percent to 1.9 percent below the baseline level.