Republicans have mocked the Obama White House for talking about a “balanced approach” to debt reduction that doesn’t actually ever balance the budget. But in its 2014 budget report, Team Obama tries to create the impression that its plan does balance the budget … in the year 2055!
The Budget reaches balance in 2055, when revenues and outlays are 21.5 percent of GDP, slightly higher than their levels during the budget surpluses of 1998-2001. The Federal Government is then projected to run surpluses over the remainder of the projection window, with publicly-held debt falling rapidly until it reaches zero in 2074 (see Chart 4–1). The 75-year fiscal gap disappears in the base case, becoming a fiscal surplus of 1.6 percent of GDP.
Now, the White House does add the bureaucratic caveat that these projections “are not intended to be a prediction of future legislative action, nor are they intended to reflect explicit policy proposals for the years beyond 2023; rather, they are a mechanical extrapolation of the Budget policies.”
Still, this is ridiculous.
1. The White House has chosen to lead with a completely unrealistic budget baseline that gives the appearance the president has solved the massive US debt problem.
2. Of course, a drill down reveals the Obama budget accomplishes this feat by a) taking tax revenue from its traditional 18% of GDP to nearly 24% of GDP — an increase of 33%, and b) by cutting spending over the long-term to less than 16% of GDP. A libertarian dream!
But how does it reduce spending that much? By cutting discretionary spending, including defense, from around 9% of GDP to 2.3% of GDP. In other words, disarmament! That is not going to happen.
3. When you factor in more realistic policy assumptions, you find the Obama budget actually leaves the US running massive deficits for decades (as this chart shows):
4. In other words, the Obama budget, by not fixing entitlements, leaves the US facing an economy-crippling fiscal tsunami. But, notably, the White House does not include a chart, as it did last year, showing the future explosion in total federal debt. If they did, it would look like this: