Republican presidential nominee Mitt Romney’s budget proposal is short by nearly $9 trillion worth of specifics—the tax increases and spending cuts needed to meet promises of revenue-neutral tax changes and capping government spending at 20 percent of GDP. In this context, the Washington Post editorial board’s recent “pox on both houses” indictment of President Obama for a lack of second-term policy specifics, particularly with regard to fiscal sustainability, was entirely off the mark. Though too often lost on the punditry, the president has produced four comprehensive, independently analyzed and scored budgets—largely consistent and all fiscally sound—offering guidance to what a second Obama administration would imply for economic recovery and fiscal sustainability.
Economy: The president’s fiscal 2013 budget request included an adaptation of the American Jobs Act (AJA), originally a $447 billion package of stimulus spending and tax cuts proposed in Sept. 2011. I recently estimated that full passage of the AJA, relative to the scaled-back payroll tax cut and Emergency Unemployment Compensation extension Congress enacted, would have boosted real GDP growth by 1.4 percentage points and employment by more than 1.6 million by the end of 2012. The administration has signaled continued support for all provisions of the AJA—particularly those that Congress has not acted upon—except the payroll tax cut; we recently calculated that the president’s economic plan would create 1.1 million jobs in 2013.
Fiscal outlook: The Post’s editorial board insinuated that, under a second Obama term, the fiscal outlook would remain unsustainable because the president has been more focused on raising revenue from upper-income households rather than reducing spending on Social Security, Medicare, and Medicaid. Over the standard 10-year budget window, their criticism of profligacy falls entirely flat. In March, the Congressional Budget Office (CBO) estimated that the president’s budget request would result in public debt of 76.3 percent of GDP by fiscal 2022. Adjusting that estimate for economic, technical, and legislative revisions between CBO’s March 2012 and Aug. 2012 baselines, the president’s budget would result in public debt falling to 73.4 percent of GDP by fiscal 2022. Under our current policy baseline, public debt is projected at 85.7 percent of GDP in fiscal 2022, more than $3 trillion higher than under the Obama budget. And there is nothing to suggest that stable debt/GDP ratios around 75 percent are unsustainable—or, for that matter, that much larger debt/GDP ratios would not result under a Romney administration. (To the contrary, there is a preponderance of evidence suggesting that public debt rising too slowly risks another recession—the “fiscal cliff” concern—and that government spending cuts are self-defeating in depressed economies.)
Obama’s budget would even produce comparable debt levels to the recommendations of Fiscal Commission Co-Chairs Erskine Bowles and Alan Simpson, whose re-scored report would result in debt at 69 percent of GDP in 2021. (The difference can largely be explained by the co-chairs’ failure to accommodate additional borrowing for the last two years’ worth of stimulative payroll tax cuts, emergency unemployment benefits, or expanded refundable tax credits, let alone any economic stimulus.) This is by no means an endorsement of the Bowles-Simpson recommendations, but the Post’s editorial board regrettably touts it as the gold standard for being very serious about the long-term fiscal outlook when engaging in baseless debt numerology.
As for the long-run, yes, the fiscal outlook is unsustainable if national health expenditure continues to rise faster than the economy grows (a problem that would be exacerbated by replacing guaranteed Medicare with a voucher because public health programs have done a better job restraining costs than private insurers). But CBO’s current law long-term budget outlook estimates have been heavily revised downward (debt in fiscal 2083 being revised into the negatives, down 331 percentage points of GDP over the last three years), aided by passage of the Affordable Care Act—the biggest piece of long-term deficit reduction in decades. And on the subject of long-term fiscal sustainability, Romney now seems to be promising to keep many perks of the ACA without paying for them. Again, his math doesn’t add up.
Bottom line: The administration’s fiscal 2010–2013 budget requests are official government documents produced by the Office of Management and Budget, complete with line-by-line summary tables and have each been independently analyzed and scored by CBO and the Joint Committee on Taxation (JCT). (Respectively available here, here, and here for the most recent fiscal 2013 budget request.) The administration has even accounted for many current policy adjustments, notably booking the costs of the Alternative Minimum Tax patch and the Medicare sustainable growth rate “doc fix.” Furthermore, JCT did not give the administration credit for certain policies deemed insufficiently detailed; for example, the proposal to impose a leverage tax on big banks booked zero revenue (CBO estimates such a proposal would raise more than $70 billion over a decade). How do you think JCT would score $5 trillion-plus worth of specified tax cuts and zero identified offsets?
This is all to say the president’s budgets have been detailed and subject to rigorous analysis—the entirely sustainable debt trajectory depicted above is not smoke and mirrors. The same cannot be said of the Romney budget and it’s nearly $9 trillion worth of asterisks.