The President’s Budget

The Administration has now released its own budget, “Obama Makes Budget Gamble”  as reported by the Wall Street Journal on Thursday, April 11, 2013.  We now have three budgets to compare with each other, from the House Republicans and the Senate Democrats as well as from the President.  Not surprisingly the President’s budget is very close to the Senate’s for the entire ten year period ahead, both in year-by-year spending totals as well as revenue projections.
The President’s budget shrinks the deficit from 5.3% of GDP for 2013 to 4.4% for 2014 and down to 1.7% in 2023.  But just retaining the sequester level of spending for next year, as the Republicans propose to do, with no other cuts, would lower the deficit level to 3.7% of GDP for next year.  And, of course, the Republicans propose to entirely eliminate the deficit by 2023.  Shrinking the deficit to 1.7% of GDP by 2023, as the Democrats propose to do, sounds good on the face of it, but it means a deficit of over $400 billion still remains ten years out.  Bottom line: both the Administration and Senate budgets increase the debt by about $5 trillion over the next ten years, making no attempt to eliminate the deficit, compared with a Republican increase of $1 trillion in debt by 2023 while finally ending our awful slide into deeper debt.
The President’s budget does have some good features such as changing the way the Consumer Price Index is computed, to make it more accurate, which could save $339 billion over ten years.  The administration suggests additional means testing for Medicare recipients so that the more affluent would pay higher premiums than at present (significant but unknown savings).  Limiting tax deductions for the top 3% of taxpayers to 28% of income would generate $529 billion over ten years.  Taxing all incomes over $1 million at the minimum rate of 30% (The Buffett Rule) would raise an additional $53 billion over ten years.
The problem is that all of these spending cuts and tax increases in the President’s budget would go to new spending rather than deficit reduction.  Tax reform, with a tradeoff between lower rates and fewer deductions, would give a big boost to the economy.  But just raising taxes in order to increase spending neither helps the economy nor lowers the deficit.  The President is again failing to provide leadership on our most critical problems.
The job of providing national leadership on economic and fiscal issues thereby goes by default to the Republican majority in the House.  This is a very big responsibility for John Boehner and company.  But they’re doing a remarkably good job so far under very trying circumstances!

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