Another look at the budget deficits

rdan

Another look at the budget deficit:

Discussions of the budget outlook typically begin with the budget “baseline”… In building the baseline, CBO follows rules that … generally assume that current laws affecting taxes and mandatory spending will continue without change.

Sometimes, however, current law diverges from current budget policies. This year, the official budget baseline incorporates several especially unrealistic assumptions. In particular, the latest baseline assumes that Congress will allow the 2001 and 2003 tax cuts, relief from the Alternative Minimum Tax, and other temporary tax provisions all to expire. It also assumes that the reductions in physician fees called for under Medicare’s sustainable growth rate formula — including a 20 percent reduction in 2010 — will actually take effect, even though Congress has stepped in to prevent such reductions since 2003. Finally, the baseline extrapolates enacted defense appropriations for 2009, which represent only a portion of the amount needed for operations in Iraq and Afghanistan this year and in coming years. …

Budget experts have been saying for a number of years that the official baseline departs sharply from reality. … In February 2009, CBO issued alternative budget scenarios that offered a more accurate representation of current budgetary policy. [2] We rely here on elements of those alternative budget projections and have updated them to be consistent with CBO’s new March 2009 baseline…

In our projection of the deficit under current budget policies, we adjust the official CBO baseline… These adjustments are detailed in the appendix table. Cumulatively, they point to deficits of $10.2 trillion over the next 10 years… CBO estimates that the cumulative deficit from 2010 to 2019 under the President’s proposals would total $9.3 trillion. Compared to our realistic baseline, the President’s proposals would reduce projected deficits by about $900 billion over the 2010-2019 period. [4] The deficit would be higher in 2009 and 2010, however, because the budget sets aside an additional $250 billion for stabilization of financial markets. …