President Obama’s 2012 budget proposal is primarily a political document—built to highlight the president’s priorities and outline a vision for the country. No one expects it to pass.
But here’s what would happen if it did, according to the Congressional Budget Office: The 2012 deficit would be $1.3 trillion—8.2 percent of gross domestic product and $82 billion higher than the current budget baseline. Next year, the deficit would decline, but still clock in at $977 billion, meaning that federal borrowing would account for more than 6 percent of the country’s total economy. In the following years, deficits would continue to decline, but will still be higher than the budget office baseline by between 1.4 and 1.9 percent of GDP each year.
All told, the nation would wrack up roughly $6.4 trillion in federal deficits by 2022. Federal debt held by the public would increase by half, rising from $10.1 trillion to $15.2 trillion in 2017, and $18.8 trillion by 2022. That’s compared to a baseline scenario in which debt reaches $15.1 trillion in 2022. The debt mountain is huge no matter which of the two scenarios you pick, but it’s larger under Obama’s budget proposal. Politico’s write up of the report ran with the headline: “Exploding debt under Obama policies.”
Of course, as the president’s defenders might point out, the budget office baseline isn’t exactly a likely scenario either. It’s based on a strict interpretation of current law, in which Medicare payments to physicians are cut sharply, income tax rates return to Clinton-era levels, and the alternative minimum tax is unchanged, hitting more and more families.
It has become popular to point out that in this do-nothing scenario—the current law baseline—debt and deficit levels are more manageable in future decades. But policies we aren’t going to follow aren’t very helpful, especially since the baseline scenario keeps the deficit down by letting tax rates rise along with spending. And this scenario simply isn’t going to happen: both parties have committed to extending most if not all of the Bush tax cuts as well as overriding Medicare’s physician payment reductions.
That’s why the CBO also uses an alternative baseline. The CBO’s alternative projects our nation’s budgetary future using a more plausible set of assumptions: "temporary" tax cuts will be extended, Medicare payments to doctors will not be sharply cut, and so forth. It offers something approaching reality when compared to the baseline scenario’s fantasy.
The president’s scenario manages to better the alternative debt scenario—but that’s not saying much. Instead of letting federal debt held by the public stretch past 90 percent of GDP, as in the alternative scenario, the president’s budget plan would hold it down to 76 percent of the economy. (See graph below.)
This is hardly an inspiring picture of the country’s budgetary future. And in the long term, it’s even worse: The budget proposal does not deal with the budget-swallowing U.S. commitments to health spending. As Treasury Secretary Timothy Geithner recently admitted, in the long term, those commitments remain “unsustainable.” It is telling that in an election year, given the freedom of knowing in advance that his budget was certain to go nowhere, President Obama chose this framework, and this timid-at-best-approach, to highlight his vision for dealing with America’s debt.