In its Analysis of the President's Budget, CBO estimates that the FY 2011 budget proposals would cause public debt levels to rise to 90 percent of GDP, above the 68 percent projected in CBO's baseline. It is clear that the President's Budget continues to place the country on an unsustainable fiscal path. The Administration must address the issue of excessive borrowing in the event that the fiscal commission does not get the country back on sustainable fiscal footing.
From CBO's January 2010 Budget and Economic Outlook, baseline estimates now show that public debt will increase from 53 percent of GDP in 2009 to 67 percent in 2020. Yet as troubling as this scenario is, it is almost certainly optimistic. If we assumed current policies were to continue as they have in the past, the debt would reach nearly 100 percent of GDP in 2020.
Over the past decade, discretionary spending has grown faster than mandatory. Between 1999 and 2008 discretionary spending grew annually, on average, by 7.5 percent – from less than $570 billion to over $1.1 trillion. Although the CBO baseline makes it appear as if discretionary spending will grow only modestly, more realistic assumptions tell a different story. Just holding discretionary spending growth to inflation would be a positive step. In the 1990s, it was these types of caps, along with pay-as-you-go rules, strong economic growth, slower-than-usual health care cost growth, and a commitment to deficit reduction that led to budget surpluses.
This paper examines the Obama administration budget reform proposals and evaluates how (and if) they would improve the budget process and restore fiscal responsibility. In particular, the paper examines the administration’s proposed changes to the calculation of the budget baseline and its reintroduction of a statutory pay-as-you-go (PAYGO) framework.