The Congressional Budget Office has just released “An Analysis of the President’s
2014 Budget”.  News reports highlight that the Obama plan will decrease the deficit over the next ten years by $1.1 trillion compared with the CBO baseline and that the
deficit in 2023 will be only 2% of GDP as opposed to 4.2% of GDP in 2013.  Federal debt held by the public (on which we pay interest) would grow from 73% of GDP ($11.3 trillion) at the end of 2012, to 77% of GDP ($12.8 trillion) at the end of 2014, and then shrink to 70% of GDP ($18.1 trillion) in 2023.
It may sound good to say that the deficit will be “only” 2% of GDP in 2023.  But this still represents about $600 billion being added every year to the national debt even 10 years from now.  Right now, with very low interest rates, we are paying $223 billion per year (8% of revenue) in interest on the debt.  When interest rates return to normal at 5% or so, interest on the debt will skyrocket, reaching $900 billion by 2023, representing 18% of the estimated $5.1 trillion in revenue for that year.  Just paying interest on the debt
will become a bigger and bigger burden for American society, continuing indefinitely into the future.
Here’s another problem with the President’s budget.  Almost half of the ten year deficit reduction ($493 billion) is achieved by limiting tax deductions to 28% of income (the tax
rate on income up to $183,000).  Using a limitation of tax deductions to shrink the deficit will make fundamental tax reform that much harder.  There is a strong bipartisan consensus for broadening and simplifying the tax code which means lowering, if not completely eliminating, many deductions in return for lower tax rates.  This should be the primary focus of tax reform in order to stimulate the economy by encouraging
more investment.
What we need is a credible plan to completely eliminate deficit spending in the
short term, and to do this together with pro-growth tax and regulatory reform.  It will be a huge challenge to get this accomplished but our future liberty and prosperity depend on it!