If Speaker Boehner has accomplished anything this year, it has been restoring order to American policymaking. Instead of being a series of back-room deals, the budget process is now set to work as our founders intended.
It was a masterstroke to maneuver Senate Democrats into passing their first budget in four years, and that budget forced President Obama to release a serious budget of his own for the first time in his presidency. With three budgets and a CBO baseline on the table now, the stage is set for vigorous and public debate.
While there has been a lot of talk about the micro details of the proposals, here are a few charts that depict the big picture. The charts below compare projected revenues, outlays, and deficits under the three plans and for the CBO baseline, all normalized to projected future GDP. The Obama budget assumes higher near-term GDP, but about the same top-line revenues at the starts, so the numbers are all normalized to CBO’s GDP forecast to make the comparisons apples-to-apples.
First, let’s look at revenues. The Republicans’ position is that they agreed to a large tax increase at the start of the year, and they are done with tax increases. Revenues in their budget are identical to the baseline. Senate Democrats call for higher tax revenues immediately, through limiting deductions and tax expenditures (although they leave it to the Senate Finance Committee to come up with the details of how $975 billion would be raised over ten years). President Obama increases tax revenues through a number of measures, including limiting itemized deductions for high-income earners and imposing a baseline tax amount of 30 percent on people earning over a million dollars, but these phase up more gradually than in the Senate plan.
On spending, the CBO baseline calls for outlays to rise from about 22 percent of GDP to about 23 percent over the next ten years. The House budget would cut that sharply, down to about 19 percent by the end of the decade. Both the Senate Democratic plan and the Obama plan call for much higher outlays at the outset, with Obama increasing spending in 2014 by a full 1 percent of GDP, and both promise to be virtuous in the out years, with future virtue having about the same scale as current sinfulness, albeit less plausibly.
The first two charts reveal relatively large differences, so it should be no surprise that the deficit impacts are wildly different. The Republican plan achieves balance by the end of the decade, whereas the two Democratic entries converge to deficits in the neighborhood of 2 percent.
To put these proposals in historical perspective, each chart also includes a horizontal line at the relevant long-run average, based on data between the years 1960 and 2012. Each proposal envisions revenues significantly higher than the long-run historical average, but only the Republican budget reduces outlays to below the long-run average. The Democrats return the deficit to its long-run average, if their future spending cuts are to be believed, while the Republicans are more ambitious, balancing the budget by the end of ten years.
— Kevin A. Hassett is director of economic-policy studies at the American Enterprise Institute.