The budget is out. Keynesians should rejoice; austerity is not coming to the United States anytime soon. I do feel sorry for future generations. Here are some key numbers:
Debt held by the public in 2012 will stand at $11.5 trillion, and by 2022 it will reach $19.4 trillion. That’s a $7,900,000,000,000 increase in our debt.
Most American families don’t have the luxury to go demand a raise from their boss because they need more money and they refuse to cut their spending; that is the core of the president’s budget. His budget plans to increase tax receipts from $2.4 trillion in 2012 to $5.1 trillion in 2022 (this is scored as a $1.5 trillion in savings). Most of the revenue increase would come from increases on taxes for wealthiest Americans ($1.4 trillion), a death-tax hike of $143 billion, and other tax increases of $340 billion.
It is an open question whether or not Congress will give the president what he wants on the revenue side (even Democrats are unwilling to raise taxes). His previous budgets asked for or planned on the expiration of the Bush tax cuts, without any success. And of course, whether or not increases in taxes would lead to more revenue is unclear.
What I can say for sure is that the rest of the savings won’t materialize. For one thing, saving money should mean cutting spending from one’s budget. This should mean that this budget will spend less in FY 2013 than in 2012. This won’t happen, of course. Cutting spending in this case means that the president will plan to increase spending less that what he had hoped for in the past.
Let’s look at the numbers: The president is requesting an increase in spending every single year. In the next ten years, spending will go up by over $2 trillion, from $3.7 trillion in FY 2012 to $5.8 trillion in FY 2022. In fact, he is even requesting more spending for FY 2013 than he requested in last year’s budget.
Also, leaving aside the fact that it is quite a stretch to pretend we have “savings” from the scheduled reductions is war spending due to the withdrawals from Iraq and Afghanistan, you will note that the president actually plans to use some of these phantom savings to raise spending on what he calls “Investment on surface transportation” by $125 billion.
As for the various real savings, they are unlikely to materialize. For instance, the president will propose some $597 billion in cuts in “health and other mandatory initiative. This trimming comes from spending on federal health programs, such as Medicare and Medicaid. But like the “doc fix” savings in the healthcare law, there is a very low probability that higher premiums and deductibles for beneficiaries and lower payments to drug companies, hospitals, and nursing homes will become real in this fiscal year or next.
The president is hoping that debt payment will be reduced by $407 billion over ten years. Unfortunately, if the spending cuts aren’t real, we shouldn’t count on lower interest payments.
Now, let’s say the mandatory cuts take place. Unfortunately, almost $600 billion over ten years is a drop in the ocean of Medicare and Medicaid spending alone. Over ten years, the programs will spend a cumulative $11.4 trillion. This is why experts have been calling for broader restructuring of the programs to control costs, but instead, piecemeal cuts.
Overall, it’s not good. More later.
Update: It should be noted that the big winners in this budget are members of the middle class. Bynyamin Appelbaum and Robert Gebeloff had a very interesting piece in the New York Times on Sunday about the expansion of government benefits for middle-class families. This budget expands some of these programs like the earned income tax credit.