The Congressional Budget Office released its preliminary analysis of the President’s proposed 2012 budget today, The verdict? It’s a mess. Were the budget to be enacted as proposed, the federal government take on bigger deficits every year until 2021 than if current law were simply maintained.
We’re not talking just a few extra billion here and there… try $2.7 trillion in new debt over the next ten years. That $2.7 trillion would be piled onto the $6.7 trillion in debt that the CBO already predicts Washington will take out from now until 2021 even if change nothing.
The report is clear that it’s not new spending that would be driving deficits to new heights under the Obama plan: it’s revenue. By their estimate, about 85 percent of the new debt that the proposed budget would bring over the existing baseline would be to cover reduced revenue.
The simple reason: the CBO’s baseline has the 2001 and 2003 Bush tax cuts expire on schedule in 2013 and allow the Alternative Minimum Tax to begin expanding, once more, into the pocketbooks of middle-income citizens. The President, by contrast, wants to keep them (except, of course, for the wealth). He’d also limit growth in the capital gains and dividend tax rates and keep some Americans from seeing high tax rates upon marriage. All of that means less coming into Uncle Sam’s coffers.
Of the new debt that can be chalked up to spending, most will go to new transportation spending, keeping Medicare reimbursement rates at current levels (the “doc fix”), and continuing some of the President’s favored tax credits.
Essentially, the CBO report echoes what many fiscal conservatives (including your humble correspondent) have already said about this budget: it’s a shocking abdication of the President’s responsibility (and stated desire) to reverse our unsustainable fiscal course. It provides a few political sops to fiscal conservatives — extending the Bush tax rates for most people, keeping capital gains and dividends taxes low — while actually increasing spending as deficits continue to spiral.
The fact that drops in revenue — from policies supported by fiscal conservatives — will account for most of the new debt in the Obama budget doesn’t mean that such policies are fiscally irresponsible. It means that the President has forgotten about the necessary counterweight to a pro-growth fiscal policy: spending restraint.
Without that necessary ingredient, keeping taxes low is not just ineffective; it could hurry some of the serious economic reckoning our fiscal crisis is leading us towards.