Five basic questions about Obama’s budget that you were not afraid to ask


(Andrew Harrer/Bloomberg)

President Obama released his budget plan today, and we asked for your questions on Twitter and in the comments section. Here are five of those questions -- and our answers.

1. How much does Obama's plan add to the deficit?

It doesn't add anything to the deficit. Budgets are usually measured over 10-year periods. The White House says its plan would shrink the deficit significantly over the coming decade.

According to the budget request, the deficit in 2014 will be $564 billion, and that will shrink to $434 billion by 2024. This is even more striking when you consider that the economy will be growing over this period. In 2024, the deficit will represent just 1.6 percent of the size of the economy. (That's how we usually measure the size of deficits and the federal debt.) Today, the deficit is estimated at about 3.7 percent of the size of the economy.

As a result of the shrinking deficit, the debt will grow at a slower pace over the next decade. The White House estimates that it will be 69 percent of the size of the economy in 2024, compared to 74.4 percent today.

This is much better than the government currently estimates. The nonpartisan Congressional Budget Office estimates that the debt will equal 74 percent of the size of the economy in 2024 and the debt will be equivalent to 79 percent of economic activity.

The main reason for the difference is the administration assumes a range of policy actions - including substantial tax hikes and the passage of immigration reform, among other things - that mean the government will raise a lot more revenue than it will spend.

rosy_budget_part_1

2. What are the tax cuts, if any, and where is a majority of the budget being spent?

The budget is fairly light on tax cuts, given that it largely aims to shrink deficits by raising taxes on the wealthy. In fact, the budget aims to raise more than $1 trillion over 10 years by hiking taxes.

But it also has some targeted tax cuts. The most prominent is an expansion of the earned-income tax credit, worth $60 billion over 10 years. The EITC, as it's called, is kind of a cash-bonus for poor workers. It primarily benefits workers with children. Obama proposes expanding the credit so it's much more generous for workers without children.

3-4-14tax

Republicans and Democrats both tend to like the EITC because it encourages people to work. That's because the value of the credit increases and then levels as a poor person earns more income before slowly phasing out. Conservative Rep. Paul Ryan (R-Wis.), for instance, has endorsed the measure.

Obama also proposes an expansion of the child tax credit, which allows many families, particularly in the middle class, deduct expenses for child care.

As to the second question, by far the majority of the budget is spent on what we call mandatory programs -- those are the programs that spend money regardless of what Congress does each year.

In dollar terms, the budget projects that we'll spend $896 billion on Social Security, $529 billion on Medicare, and $331 billion on Medicaid in 2015. By comparison, the government would spend $606 billion on defense programs and $543 billion on domestic programs (education and a very long list of other initiatives).

Click here for an agency-by-agency breakdown of Obama's budget.

3.  Why should I care about the Obama budget plan if it has no chance of passing Congress?

It's certainly a fair question, and there are a couple of responses. Perhaps the favorite answer of reporters (including me) is that it reveals Obama's political playbook for the mid-term elections -- the set of bread-and-butter populist issues he and Democrats want to run on.

But let's not be cynical for a moment. The budget offers a highly detailed picture of Obama's priorities and what he wants to accomplish in his final years in office. It is a numerical codification of his values. And while we don't know if any of it will ever become law, it provides a road map to the vision of a man who was elected twice to the nation's highest office.

4. What are the short-term risks associated with this attempt to lower the national debt?

For starters, Obama's budget plan does not lower the debt. The debt held by the public would continue to grow from $12.9 trillion today to $19 trillion in 2024.

But the spirit of the question is correct: While the debt is growing, it is growing at a much slower pace than in recent years because the deficit is shrinking. As a reminder, the deficit is the amount of government spending less the amount of revenues the government collects. Accumulated annual deficits make up the debt.

Shrinking the deficit generally is often a good thing. But in a weak economy -- what we've had in recent years and what we'll continue to have for several more years-- shrinking the deficit has risks.

Although much derided, government spending is a huge part of the economy. And if you shrink the deficit too quickly, you'll cause overall economic activity to decline and unemployment to rise (or fall more slowly).

Many economists say that for the past several years, we've been shrinking the deficit too fast, putting a big drag on the economy's recovery. But going forward, much of this so-called "fiscal drag" should disappear.

The debt is going to grow, but at a slower rate.

5. From commenter allan9: "At least in my book, growing the overall size of the debt does not count as "easing" the debt problem. What am I missing?​"

This question follows well from the previous question. The debt picture for the next decade has improved markedly, but we're not out of the woods. And by historical standards, the debt right now is quite high right now - at above 70 percent relative to the size of the economy.

Over the last 50 years, the debt has averaged around 40 percent of the size of the economy. But while Obama projects that the debt as a percentage of the economy will decline in coming years, over coming decades it will continue to pose a significant challenge.

Here's CBO's look at the long-term budget outlook, without regard to new Obama proposals.

44521-land-LTBO-1

 

Zachary A. Goldfarb is policy editor at The Washington Post.
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