Battle of the Budgets

On Wednesday President Obama presented his 2014 Budget Proposal -- two months later than required by law. Even the Obama cheerleaders at Reuters glumly confess, "it has little chance of becoming law."

Obama's budget joins two earlier budgets presented last month which also have little chance of becoming law: the House budget authored by Paul Ryan, and a Senate proposal authored by Patty Murray.

Federal budgets present ten-year forecasts in the section known as Summary Tables. No budget is binding for more than one year, but the Summaries give an idea of budget priorities. Here are several important benchmarks:


Obama

Ryan

Senate

"Current Policy"

2014 budget

$3.778 T

$3.531 T

$3.715 T

$3.611 T

2023 budget

$5.660 T

$4.954 T

$5.687 T

$5.765 T

Increase

+$1.882 T

+$1.423 T

+$1.972

+$2.154

% increase

+49.8%

+40.3%

+53.1%

+59.6%

% per year

+4.6%

+3.8%*

+4.8%

+5.4%






10 year receipts

$41,231


$40,241 T


$41,164 T

$40,241 T

10 year outlays

$46,502

$41,466 T

$46,362 T

$46,099 T

Added to national debt

$5.271 T

$1.225 T

$5.198 T

$5.858 T

*Ryan claims an annual increase of 3.4%, but I'm not sure about the math. I calculated for 9 years of growth after 2014, while Ryan appears to have calculated growth in year zero.

The first thing that jumps out from these budgets is that none of them propose any actual spending cuts. In nominal figures, all three budgets increase spending every year, and all three add to the national debt by spending more than they take in every year. The only difference is how much more spending and debt they propose to pile onto our already massive debt.

Secondly, the GOP proposal adds roughly $4 trillion less to the debt by spending $5 trillion less and collecting $1 trillion less in taxes. The Democrats do in fact have a spending problem.

Paul Ryan's budget is clearly the best of the bunch, but even this paragon of fiscal responsibility increases spending and continues deficit spending for the first 9 years of the next ten. Nine years running in the red, suddenly we run a small surplus ten years out, and it's praised as "balancing the budget in ten years."

"Balancing one budget ten years from now" is more accurate.

Even so, Ryan was savaged in the media for "cutting $4.6 trillion from spending over the next decade..."(NYT).  Similarly on CNN: the Ryan budget "cuts taxes while balancing the budget over 10 years by slashing spending by $4.6 trillion."

The $4.6 trillion figure comes the difference between his 10-year accumulated deficits and those of the "Current Policy," a hypothetical figure projected forward from the CBO February 2013 Baseline.

Obama has been on the hustings selling his 2014 Budget as a "fiscally responsible" plan that will "cut the deficit by $1.8 trillion over the next decade." He means that his 10-year deficits are $600 billion below the Current Policy, and then he claims credit for $1.2 trillion in Sequester cuts.

Obama refuses to compromise because, "When it comes to deficit reduction, I've already met Republicans more than halfway." It's a mendacious statement. He hasn't met anyone halfway. Halfway to what? No one is reducing any spending or any debt.

Of course, we might concede that the budget needs to grow to account for inflation and population growth. The U.S. population has been growing at 0.8% or 0.9% per year and, the argument goes, federal outlays must grow by the same percentage. There's some truth to this requirement -- more people means more social security checks, but I'm not sure this needs to be a rigid ratio -- we don't build 1% more bridges to accommodate 1% more people.

Inflation is hovering around 2%. For the moment, Paul Ryan's 3.8% annual growth seems entirely adequate to accommodate normal growth pressures. In other words, referring to "drastic cuts" in his budget is absurd.

The big problem with the Republican's "responsible, balanced" spending is that they have agreed to a starting point of $3.531 trillion. The massive spike in spending under Obama--"emergency spending to avert a worldwide financial meltdown" -- has become the new baseline.

Some have suggested going back to Clinton era spending levels (2001 budget: $1.9 T). If we started with spending levels as recent as President Bush's 2009 $3.1 trillion budget -- record-breaking at the time --  and allow it to grow at 3.8% annually, it would lead to 10-year total outlays of $36.9 trillion. Ryan projects $40.2 trillion in revenue over ten years, which would create a surplus under this scenario.

The other half of the deficit equation -- tax revenues -- is also problematic. Obama's budget projects an increase in tax receipts from $3.034 trillion in 2014 (itself 11.8% higher than 2013) to $5.220 trillion in 2023, an increase of 41.8%. Paul Ryan declared by fiat that his changes to the tax code would be "revenue neutral"; thus his new tax code will yield identical revenues. Without this projected robust revenue growth, the debt and deficit picture would be even more catastrophic.

In the upside down world of the federal budget, running a trillion dollar deficit one year and a $900 billion deficit the next is called "cutting the deficit" by $100 billion. We're not cutting anything; we're continuing to add more deficit spending, which adds to the national debt. We haven't even had a budget since Obama's first year in office. The whole thing is a game of smoke and mirrors -- with unfortunate real world consequences.

And by the way, in case you're worried that Obama's deficit-cutting rampage will endanger essential programs, fear not. Oil & Gas Journal reports:

The budget requests $7.9 billion in spending across the government in fiscal 2014 on programs "to accelerate the transition to a low-carbon economy and position the United States as the world leader in clean energy"...The Department of Energy would spend $1.8 billion, 43% more than in 2012, "to advance the state of the art in clean energy technologies such as advanced vehicles and biofuels, industrial and building energy efficiency, and renewable electricity generation from solar, wind, water, and geothermal resources."

On Wednesday President Obama presented his 2014 Budget Proposal -- two months later than required by law. Even the Obama cheerleaders at Reuters glumly confess, "it has little chance of becoming law."

Obama's budget joins two earlier budgets presented last month which also have little chance of becoming law: the House budget authored by Paul Ryan, and a Senate proposal authored by Patty Murray.

Federal budgets present ten-year forecasts in the section known as Summary Tables. No budget is binding for more than one year, but the Summaries give an idea of budget priorities. Here are several important benchmarks:


Obama

Ryan

Senate

"Current Policy"

2014 budget

$3.778 T

$3.531 T

$3.715 T

$3.611 T

2023 budget

$5.660 T

$4.954 T

$5.687 T

$5.765 T

Increase

+$1.882 T

+$1.423 T

+$1.972

+$2.154

% increase

+49.8%

+40.3%

+53.1%

+59.6%

% per year

+4.6%

+3.8%*

+4.8%

+5.4%






10 year receipts

$41,231


$40,241 T


$41,164 T

$40,241 T

10 year outlays

$46,502

$41,466 T

$46,362 T

$46,099 T

Added to national debt

$5.271 T

$1.225 T

$5.198 T

$5.858 T

*Ryan claims an annual increase of 3.4%, but I'm not sure about the math. I calculated for 9 years of growth after 2014, while Ryan appears to have calculated growth in year zero.

The first thing that jumps out from these budgets is that none of them propose any actual spending cuts. In nominal figures, all three budgets increase spending every year, and all three add to the national debt by spending more than they take in every year. The only difference is how much more spending and debt they propose to pile onto our already massive debt.

Secondly, the GOP proposal adds roughly $4 trillion less to the debt by spending $5 trillion less and collecting $1 trillion less in taxes. The Democrats do in fact have a spending problem.

Paul Ryan's budget is clearly the best of the bunch, but even this paragon of fiscal responsibility increases spending and continues deficit spending for the first 9 years of the next ten. Nine years running in the red, suddenly we run a small surplus ten years out, and it's praised as "balancing the budget in ten years."

"Balancing one budget ten years from now" is more accurate.

Even so, Ryan was savaged in the media for "cutting $4.6 trillion from spending over the next decade..."(NYT).  Similarly on CNN: the Ryan budget "cuts taxes while balancing the budget over 10 years by slashing spending by $4.6 trillion."

The $4.6 trillion figure comes the difference between his 10-year accumulated deficits and those of the "Current Policy," a hypothetical figure projected forward from the CBO February 2013 Baseline.

Obama has been on the hustings selling his 2014 Budget as a "fiscally responsible" plan that will "cut the deficit by $1.8 trillion over the next decade." He means that his 10-year deficits are $600 billion below the Current Policy, and then he claims credit for $1.2 trillion in Sequester cuts.

Obama refuses to compromise because, "When it comes to deficit reduction, I've already met Republicans more than halfway." It's a mendacious statement. He hasn't met anyone halfway. Halfway to what? No one is reducing any spending or any debt.

Of course, we might concede that the budget needs to grow to account for inflation and population growth. The U.S. population has been growing at 0.8% or 0.9% per year and, the argument goes, federal outlays must grow by the same percentage. There's some truth to this requirement -- more people means more social security checks, but I'm not sure this needs to be a rigid ratio -- we don't build 1% more bridges to accommodate 1% more people.

Inflation is hovering around 2%. For the moment, Paul Ryan's 3.8% annual growth seems entirely adequate to accommodate normal growth pressures. In other words, referring to "drastic cuts" in his budget is absurd.

The big problem with the Republican's "responsible, balanced" spending is that they have agreed to a starting point of $3.531 trillion. The massive spike in spending under Obama--"emergency spending to avert a worldwide financial meltdown" -- has become the new baseline.

Some have suggested going back to Clinton era spending levels (2001 budget: $1.9 T). If we started with spending levels as recent as President Bush's 2009 $3.1 trillion budget -- record-breaking at the time --  and allow it to grow at 3.8% annually, it would lead to 10-year total outlays of $36.9 trillion. Ryan projects $40.2 trillion in revenue over ten years, which would create a surplus under this scenario.

The other half of the deficit equation -- tax revenues -- is also problematic. Obama's budget projects an increase in tax receipts from $3.034 trillion in 2014 (itself 11.8% higher than 2013) to $5.220 trillion in 2023, an increase of 41.8%. Paul Ryan declared by fiat that his changes to the tax code would be "revenue neutral"; thus his new tax code will yield identical revenues. Without this projected robust revenue growth, the debt and deficit picture would be even more catastrophic.

In the upside down world of the federal budget, running a trillion dollar deficit one year and a $900 billion deficit the next is called "cutting the deficit" by $100 billion. We're not cutting anything; we're continuing to add more deficit spending, which adds to the national debt. We haven't even had a budget since Obama's first year in office. The whole thing is a game of smoke and mirrors -- with unfortunate real world consequences.

And by the way, in case you're worried that Obama's deficit-cutting rampage will endanger essential programs, fear not. Oil & Gas Journal reports:

The budget requests $7.9 billion in spending across the government in fiscal 2014 on programs "to accelerate the transition to a low-carbon economy and position the United States as the world leader in clean energy"...The Department of Energy would spend $1.8 billion, 43% more than in 2012, "to advance the state of the art in clean energy technologies such as advanced vehicles and biofuels, industrial and building energy efficiency, and renewable electricity generation from solar, wind, water, and geothermal resources."

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