President Obama’s deficit-reduction plan “falls short” of targets set by House Republicans and Obama’s own fiscal commission and would be unlikely to stabilize borrowing, according to a new independent analysis.
The analysis, by the bipartisan Committee for a Responsible Federal Budget, found that the plan Obama unveiled in a speech last week would require the nation to borrow another $7 trillion during the next decade, compared with about $5.5 trillion under the House Republican budget and about $5.3 trillion under the recommendations offered in December by Obama’s fiscal commission.
The new outline is a significant improvement over the budget request Obama submitted to Congress in February, which would have required $9.5 trillion in fresh borrowing through 2021. However, the framework is unlikely to reduce deficits as much as Obama suggested, the analysis found, and would therefore permit the portion of the national debt held by outside investors to continue rising, when measured against the size of the economy, to just less than 80 percent of gross domestic product by the end of the decade.
By contrast, the budget blueprint adopted last week by the House matches the fiscal commission’s plan “dollar for dollar” with new savings, according to the analysis. While the total debt would keep growing under both proposals, the rate of borrowing would slow dramatically and the debt would slowly begin to diminish when measured against the size of the economy, settling at less than 70 percent of GDP by the end of the decade.
“By presenting his own framework for deficit reduction, the President has done a substantial service in moving the ball forward,” the analysis says. “Not only is the President’s Framework a significant improvement over his February budget proposal, it represents a balanced approach to begin improving the nation’s finances — a move we praise.”
“At the same time, when compared to the House budget and Fiscal Commission plan, the President’s Framework falls short,” the analysis says, adding that the level of savings achieved by both the GOP plan and the fiscal commission “is the minimum level of savings policymakers should aim for.”
The committee’s analysis was based on the proposed savings offered in Obama’s framework through 2021, including $130 billion in cuts to defense and security spending, $450 billion in cuts to domestic programs, more than $600 billion in cuts to entitlement programs such as Medicare and Medicaid and nearly $800 billion in fresh revenue from an overhaul of the tax code. The committee did not take into account the “debt fail-safe” Obama proposed, a sort of trigger that would force additional cuts if deficit targets were not met by 2014.
White House spokeswoman Amy Brundage defended the president’s plan, arguing that the committee’s analysis relies on economic forecasts by the Congressional Budget Office that are less optimistic than forecasts by the White House budget office.
“Under the administration’s estimates, the president’s framework saves $2.9 trillion over 10 years and $4 trillion over 12 years,” Brundage said. Plus, she said, if the CBO’s projections are used, “the president’s framework would save more not less than these totals” because the debt fail-safe would be triggered, resulting “in the additional savings needed to reduce the debt as a share of the economy.”
“Even with the Committee for a Responsible Federal Budget’s shifting of the goal posts and failure to factor the fail-safe in their analysis,” Brundage said, “they still confirm that the president’s plan would reduce the deficit substantially and prevent a large increase in the debt.”
The fail-safe could be a powerful and useful tool for managing the nation’s finances, the committee’s report says. But unless it is triggered, “it appears unlikely that the policies proposed in the President’s Framework would be sufficient to reduce or even stabilize debt levels. . . . We believe significant additional savings will be needed.”
While the president’s plan would deliver on his promise to save about $4 trillion, compared with current policies, during the next 12 years, the analysis found that much of those savings are loaded into the final two years. Savings over the next decade, a more common budget timeline, would amount to about $2.5 trillion compared with current policies, the report says.