Pethokoukis, Economics, Taxes and Spending

White House: We’ll balance the federal budget … in 2055!

Credit: White House Office of Management and Budget

Credit: White House Office of Management and Budget

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!

From the White House Office of Management and Budget:

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):

041013WHbudget2

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:

021612geithner

13 thoughts on “White House: We’ll balance the federal budget … in 2055!

  1. First, to put a time target on balancing the budget is preposterous. For one, speed is NOT of the essence here, and second, making projections over time, as we have seen, are useless exercises.

    All we need to do is trend downwards. As a percentage of GDP, the deficit is already shrinking faster than at any time since Ike was in office. The wars are over, and those costs will shrink from those wonderful adventures we inflicted upon ourselves.

    We’ll hike taxes. And cut spending at a REASONABLE pace. Jobs cut deficits. Spending cuts cut jobs.

    Your move.

    • “First, to put a time target on balancing the budget is preposterous.”

      It does little good to claim to have a strategy to avert disaster after disaster has already arrived, does it not? Therefore, putting time targets on plans to avert disaster are not preposterous. Your premise is flawed. (Although, I must admit, that I suspect that your real premise is that the deficit and debt are not problems, but that is not what you’ve argued.)

      “All we need to do is trend downwards.”

      Not true. If I spend $1B a year and make $1 a year, it does little good to trend my spending downward. Yes, this is exaggeration – used to demonstrate the error of your premise.

      “As a percentage of GDP, the deficit is already shrinking faster than at any time since Ike was in office.”

      If I have an annual budget deficit of $100 for 10 years, but then one year have a budget deficit of $10,000, followed by a budget deficit of $5,000, am I in better shape because my deficit is shrinking faster than at any time in history? I think not. Your premise is insufficient to prove anything absent further data.

      “And cut spending at a REASONABLE pace.”

      I can only assume that by “reasonable pace” – make that “REASONABLE pace” – that you mean “a substantial, net negative rate.”

      • “Not true. If I spend $1B a year and make $1 a year, it does little good to trend my spending downward. Yes, this is exaggeration – used to demonstrate the error of your premise.”

        Oh, why don’t you shut up?

        This board is condemned to producers of facile bullshit.

    • >As a percentage of GDP, the deficit is already shrinking faster than at any time since Ike was in office.

      That’s setting a pretty low bar considering no president, outside of WW II, has run deficits as large as Obama’s. And an interesting metric (deficits). Spending is out of control, debt is out of control, so the new metric is the unfunded portion of the budget that Obama claims will be balanced in 2055! Hooray!

      And yes, projections over time are useless, as each year Obama forcasts the deficit shrinking in the out years that doesn’t come to pass. Shrinkage based on economic growth rates that don’t occur, and spending that goes up unrelentingly. Hope and chains.

  2. No question this is ugly. Two points. The budget assumes 2.3 percent growth in gdp in out years. If that forecast comes true, the budget deficit won’t be the biggest worry in 2030. And taxes are still too low. This chart from the Center on Budget Policies and Priorities shows the (bad) effects of the bush tax cuts growing into the future. http://www.cbpp.org/cms/index.cfm?fa=view&id=3849

    In short, the middle class tax cuts have to go away, and that will be tough to do in a bad economy. So will kneecapping old folks, which is what Medicare vouchers would do if healthcare prices aren’t addressed first. You will note that Ryan’s budget puts off vouchers until 2024.

    • No we need economic growth, you cannot achieve that by raising taxes, the spending must be cut, and taxes must be cut. Raising taxes will depress the job market and reduce GDP. Giving the Government more money simply makes the problem worse, it is like giving an alcoholic a bottle of whiskey. Government particularly this government is the least efficient user of capital the world has ever seen. The only place prosperity is created is the private sector, it is the only place productive jobs are created and we need to create more jobs that pay for themselves and more taxpayers if we ever hope to save this Nation. Government jobs and welfare do not create economic growth, they simply increase the burden on already downtrodden economy.

      • You have missed a step in your analysis. The “job creators” must put their taxcut revenues to productive work. In this country. The Alliance for American Manufacturing commissioned a UMass study showing that $1 billion in infrastructure projects generates 18,000 jobs vs 14,000 jobs for same $1 billion in tax cuts.http://americanmanufacturing.org/content/how-infrastructure-investments-support-us-economy-employment-productivity-and-growth The difference: We know that bridge and road work requires workers. In this country.

        Here is Mark Zandi of Moodys Econometrics gauging the “bang for the buck” potential of various fiscal stimulus proposals: http:/www.cbpp.org/cms/?fa=view&id=3349 Making the Bush tax cuts permanent for 35 cents on the dollar or extending UI benefits? The difference: your jobless fellow spends every dime he gets. In this country.
        America prospers when the middle class prospers. To paraphrase: God musta loved ordinary people because he created so many of them. Trickle-down doesn’t work. At least not for workers in this country.

        • “The “job creators” must put their taxcut revenues to productive work.”

          They would if Obama and the Democrats would get their grubby feet off the job creators’ throats.

    • “So will kneecapping old folks, which is what Medicare vouchers would do if healthcare prices aren’t addressed first. ”

      First?? The stimulus was supposed to address your complaints about infrastructure. Obamacare was supposed to “bend the cost curve down.”

      Big government failures are always used as excuses by the leftists for yet more government. Leftism fails upwards.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>