Much of the negative impact on the nation’s budget outlook would come from the president’s proposals to maintain tax cuts for the middle class that are now due to expire in 2012. Though Obama has proposed raising taxes on corporations and the wealthy – primarily by limiting the value of itemized deductions – his tax policies on the whole would reduce revenues by more than $3 trillion over the next decade compared with current law, the CBO said.
The lost revenue would require more borrowing, which in turn would increase interest payments on the national debt. The CBO said interest payments would more than quadruple by 2021 under the president’s policies, from $214 billion this year to more than $900 billion a year by the start of the next decade.
On balance, Obama’s spending policies would reduce the deficit over the next decade, the CBO said, in part by freezing spending on domestic agencies for five years. However, both spending and tax collections would be well above their historical averages by 2021 under the president’s policies, with government outlays at more than 24 percent of GDP and revenues at 19.3 percent.
White House budget director Jacob J. Lew used a blog post to explain the difference in deficit estimates, noting that CBO failed to credit the administration with paying for a significant transportation initiative and a pay-increase for doctors who see Medicare patients because the administration did not say how those programs would be paid for. Moreover, Lew said, the CBO used different assumptions about the economy.
“There is large uncertainty in economic projections and differences of opinion when it comes to assessing individual policies,” Lew wrote. “But regardless of our differences, CBO confirms what we already know: current deficits are unacceptably high, and if we stay on our current course and do nothing, the fiscal situation will hurt our recovery and hamstring future growth.”
Republicans pounced on the CBO report, using it to again criticize Obama’s budget proposal.
“The Congressional Budget Office’s report exposes the widening gulf between the President’s rhetoric and his budget’s reality. Simply put, the President’s budget spends too much, taxes too much, and borrows too much - and it continues to heap an unsustainable burden of debt on American families, today and in the future,” said House Budget Committee chairman Paul Ryan (R-Wisc.), who has pledged to “chart a path to real security” in the budget he will unveil next month.
Meanwhile, the CBO had mixed news on two existing initiatives. On one hand, the expected cost of the TARP bank bailout continues to plummet. The $700 billion program, originally estimated to cost taxpayers about half that sum, is now expected to cost no more than $19 billion, the CBO said. That’s down from a previous estimate of $25 billion.
But the expansion of health insurance coverage that is the cornerstone of Obama’s health overhaul may prove to be nearly $100 billion more expensive than expected, the CBO said.
Despite the increased cost of subsidies for insurance and lost revenue from tax credits for people who buy coverage, the program overall may still decrease deficits, the CBO said, though the agency has yet to produce a fully updated cost estimate.