Saturday, March 17, 2012

CBO Report Says Deficits Will Be Smaller Than Obama Projects

This is what the headline should read based on the numbers.   
But here is what The Hill's headline actually reads:

CBO says Obama's latest budget would add $3.5 trillion in deficits through 2022

Here is what The Hill is reporting in support of their misleading headline:

By Erik Wasson - 03/16/12 10:09 AM ET

President Obama’s 2013 budget would add $3.5 trillion to annual deficits through 2022, according to a new estimate from the Congressional Budget Office (CBO).

It also would raise the deficit next year by $365 billion, according to the nonpartisan office.

The CBO estimate is in sharp contrast to White House claims last month that the Obama budget would reduce deficits by $3.2 trillion over the next decade.

The differences between the estimates from CBO and the White House budget office are attributable to different baselines and economic assumptions, and a big reason CBO expects the deficit to spike sharply under Obama's budget is that CBO's baseline assumes all the Bush-era tax rates will expire at the end of 2012.

Obama wants to continue the middle-class tax cuts, something reflected in his budget.

CBO also compares Obama's budget to a different baseline in which the budget office assumes Congress and the administration decides to avoid big tax increases and deep spending cuts, something both branches have repeatedly done in the past.

In this scenario, for example, all of the Bush-era tax rates are extended and the Alternative Minimum Tax is "patched" to prevent it from falling on millions of middle-class taxpayers. In this comparison, Obama's budget would actually reduce the deficit by $4.3 trillion through 2022. [more at URL below]

Here's what Nobel Prize winning economist Paul Krugman sees 
when he looks at the numbers: 

Paul Krugman - New York Times
March 17, 2012, 10:18 AM

Budget Madness

I think I need a shower. Talking Points sends us to a badly written article in The Hill about the CBO’s latest budget estimates. If you read the article very, very carefully, you might be able to figure out that the CBO only shows Obama increasing deficits relative to a very unrealistic baseline, which among other things assumes that all the Bush tax cuts expire; relative to CBO’s “alternative” scenario, which represents a continuation of current policy, Obama actually cuts deficits substantially. But a casual read — and the headline — would leave you with the impression of Obama the wild spender.
And hence my need for a shower. Just read the comments, and weep for America.
But here’s the thing: it’s not just bad reporting spreading this disinformation. Let me come back to John Taylor’s appalling op-ed from a year ago, alleging a huge expansion of government that anyone who knows anything about the federal budget knows just didn’t happen — it was all a lower denominator because of the slump, plus unemployment insurance and food stamps. Then, when challenged, rather than acknowledging the error, he tried to usespending projections for a decade from now to claim that there really was a spending binge, forgetting about the baby boomers.
What the CBO report actually says is that it expects deficits to be a bit smaller than Obama projects. Oh, and about spending: here’s the OMB projection of spending with and without Social Security and Medicare — both driven by demography — and interest costs:
No binge here — but even GOP “experts” won’t admit it.On a related note, people who can’t read numbers making dumb claims about Obamacare. [goto URL below]

And here's Talking Points Memo on this subject:

BRIAN BEUTLER MARCH 16, 2012, 5:34 PM 10264 58

A new Congressional Budget Office report has reignited the spin wars over President Obama’s budget, and Republicans are eagerly blasting articles to reporters about how the administration would explode deficits and debt if left to its own devices.

But this line of attack is based on a questionable premise, familiar to veterans of the past year’s budget wars.

The key to all of these stories is the CBO baseline. Officially, the budget analysts there use “current law” to gauge the expected impact of policy proposals, whether from the Hill or the White House. But under “current law” all the Bush tax cuts will expire, all of the sequestration spending cuts triggered by the Super Committee’s failure will take effect, and other parts of the budget will tighten automatically, in ways lawmakers and the president are determined to avoid. Relative to all of that austerity under current law, indeed, Obama’s budget blows up the budget. So too does every Republican budget proposal and every proposal put forward by influential outside fiscal policy groups.

CBO also uses an “alternative fiscal scenario” based largely on current policy. And the changes Obama proposes to current policy — the world we currently inhabit where the Bush tax cuts are still in effect, and sequestration hasn’t happened — accomplish one of fiscal policymakers’ key goals: reducing medium-term deficits and stabilizing the debt as a share of GDP over the next several years.

Here’s a chart we created from CBO’s own analysis.

That near-term debt path is pretty similar to the one House Republicans propose, with a program of deep cuts to federal programs and tax cuts.

If all of the austerity scheduled for the year is allowed to take effect, then indeed, CBO projects debt to fall faster than it would under Obama’s plan. But compared to where we’re headed if all the Bush tax cuts are extended, as Republicans want, and all the automatic spending cuts are nixed, the fiscal picture looks much worse.

Beyond that 10-year window, things are murkier — and this is where the parties are most at odds. Most projections suggest that after about 10 years, rising health care costs and an aging population will cause Medicare spending to explode, eventually overwhelming the budget. Obama’s plan staves this off for a few years — and thus buys policymakers and the health care system some running room to solve that problem without radically disrupting federal health care programs.

Republicans propose to address this problem largely by phasing out Medicare and providing seniors with subsidies to buy private insurance. Those subsidies would be limited — that’s how it solves the fiscal problem in the long term — leaving seniors to hope health care providers and insurers can solve the cost growth problem, or to pay significantly more out of pocket for their own care year after year. [Read more at URL below]

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