Today the White House released President Obama’s 2014 budget proposal, which would chop about $1 trillion in federal spending and raise taxes by $800 billion over the next decade. Ideally, it would stabilize the deficit at about 2% of GDP over the next decade, thus allowing the US debt burden to be reduced through economic growth.
The White House maintains that it is striking a careful balance between job creation and debt reduction. Republicans say it doesn’t reduce the debt fast enough, while progressive Democrats object to cuts in Social Security pensions and other programs. But as we debate the budget situation years in the future, keep in mind that nobody knows what’s coming. Just look at this chart showing the uncertainty in the forecast:
To quote the budget’s analytical annex: ”The deficit is projected to be 2.3 percent of GDP in 2018, but has a 90% chance of being within a range of a surplus of 4.8% of GDP and a deficit of 9.4% of GDP.”
This makes sense, since the budget is hugely dependent on the state of the economy, both on the tax side and because of the higher cost of the public safety net during a recession. Remember that budgeteers didn’t predict the budget surpluses of the early 2000s accurately, and few people in 2003 thought the national debt would more than double in the next decade after a huge financial crisis.
Regardless, few in Washington think the budget will become law as-is; it’s been released late, after both chambers of Congress have outlined their priorities. It’s more useful as an example of the president’s theory of economic growth (more on that later) and a negotiating document, though it’s a proposal that Congressional Republicans already rejected.
The plan itself is largely a combination of the President’s deficit reduction offer to Republicans from 2012, including entitlement cuts, and a package of policy proposals he outlined at the State of the Union address in January: A higher minimum wage, cigarette taxes to fund universal pre-kindergarten education, investments in science, a financing competition to urge the states to upgrade their electrical grids, and spending to improve infrastructure.
A few primary sources and further reading: