FY2013 President’s Budget: Election Year Games and Gimmicks

By the Numbers

Taxes: The President’s Budget proposes increasing taxes by $1.9 trillion, raising tax revenues as a share of the economy by nearly two percentage points above historic norms.

Spending: The President’s Budget would increase spending by over $2.7 trillion over tens above the Congressional Budget Office’s (CBO) baseline projections, maintaining spending levels over two percentage points above post-war levels.

Deficits: The President’s Budget would carry-forward the record deficits seen in the past three years, requiring additional borrowing of over $2.2 trillion in just two years, while running a ten-year average deficit of $668 billion.

Debt Held by the Public: Borrowing from the public will reach the highest levels since 1950 in FY 2012, reaching 74.2 percent of the economy and, under the President’s Budget, will remain at levels not seen in over 60 years. It is worth noting that in every year of the President’s Budget, debt held by the public as a share of GDP exceeds the single highest level ever seen under the president’s own fiscal commission’s plan, which the president has since ignored.[1]

Economic Projections

Compared to CBO’s most recent projections, the President’s Budget includes rosier economic projections in terms of both economic growth and unemployment. This is particularly marked in the near term, with particularly stark contrast between OMB’s and CBO’s projections for 2013 GDP growth where the Obama administration projects economic growth of nearly twice that as CBO’s baseline projection. Outsized near-term economic growth estimation swells GDP growth early in the 10 year budget window and permanently inflates tax revenues, which artificially improves that deficit and debt outlook.

Claimed Savings:

The President’s Budget claims nearly $5.3 trillion in deficit reduction over 10 years. However, examining the claimed savings more closely reveals a deficit reduction plan that is little else beyond a massive tax increase masquerading behind budget gimmickry. Of the $5.286 trillion in claimed deficit saving, $5.282 trillion results from the following four components: $1.9 trillion in tax increases, $1.7 trillion from legislation enacted prior to the release of the Budget, nearly $850 billion in savings claimed by a wind-down of operations in Iraq and Afghanistan, and $800 billion in associated interest savings. Combined, these components are responsible for 99.9 percent of the net deficit savings, with a paltry $4 billion resulting from other net policy changes.

However, even the savings claimed in the four major areas are suspect. The savings associated with previously enacted laws, while important, do not reflect savings going forward, as they have since been incorporated in the CBO baseline.[2] Further, the claimed savings from overseas operations is a widely acknowledged gimmick.[3] Savings can only be claimed relative to an artificial baseline that by budget convention that war spending will grow over time, even though reality tells a much different story. And lastly, while interest savings are important, they should be distinguished from actual policy choices. What that leaves is essentially a large tax increase, paired with budget gimmickry to artificially inflate the deficit savings. There should be no confusions, despite the smoke and mirrors that this is little more than just another tax and spend budget.