Last week, the CBO released its Preliminary Analysis of The President’s Budget, projecting a significantly worse fiscal situation than the Administration does. The cumulative deficit numbers from the CBO over the 2010-2019 period are over $2.2 trillion greater than those from OMB.
Although CRFB commends the President for having a specific fiscal goal and for honestly budgeting for expected costs, several items and trends in the budget are troubling. This paper focuses on three main issues: a more aggressive deficit goal would be appropriate; introducing new spending programs and tax cuts before finding ways to close the fiscal gap threatens the principle that Congress set forth to fully offset all new initiatives; and the budget largely fails to address the long-term.
Today, the White House released an outline of the FY2010 Budget. The President’s budget has a specific fiscal goal, accounts for policies omitted by previous budgets, and proposes to fully offset new tax cut and health care plans. This paper analyzes the fiscal goals, baseline figures, health care reform, and the budget process elements of the President’s budget outline.
This paper looks at the 1967 President’s Commission on Budget Concepts and which concepts need to be re-visited by the Peterson-Pew Commission on Budget Reform.
San Antonio Express-News | October 31, 2008
The new president will face many challenges, but the critical budget problems of our country top the list. The economy is likely to still be in recession. The continually increasing national debt will serve as handcuffs to his promised agenda.
Confronting these challenges will not be easy; ignoring them puts the health of the country at grave risk.
The new president will first have to get the economy under control. This may require further fiscal stimulus, but he should ensure that any package is not filled with fiscal pork. All stimulus measures should be temporary to avoid digging ourselves deeper into debt down the road.
Second, the new president will have to deal with the budget deficit. Ongoing deficits hurt all of us. The continued borrowing by our government crowds out private investment, which in turn causes slower economic growth. Deficits also harm future generations by allowing politicians to initiate new spending programs and provide tax cuts for current workers, while sending the bill to our kids. And deficits leave us vulnerable to our foreign lenders, who are gaining an increasing amount of influence over U.S. policy.
The budget plans of both Senators McCain and Obama would increase rather than decrease future deficits. The Committee for a Responsible Federal Budget analyzed the impact these policies would have at the end of the next president's first term in our Voter Guide, “Promises Promises: A Fiscal Voter Guide to the 2008 Election.”
Our analysis shows that both candidates would increase the deficit by more than $200 billion a year. Given the new debt levels in the United States –– the national debt just broke $10 trillion –– this will not fly.
Both Senators McCain and Obama are realistic men who know we cannot keep up this seemingly insatiable appetite for spending and cutting taxes. Campaigns may not always be the best time for delivering bad news, but the honeymoon period afterward will require straight talk with the American people.
The new president will need to submit a budget plan that phases out the deficit over a reasonable amount of time. That might be five years, it might be 10, but what matters most is that the plan is credible. This will require shelving many of his priorities until the budget is in better shape to accommodate new tax cuts and spending.
The new president will have to work with Congress to get his plan passed. This will require the development of a bipartisan plan that reflects the goals of both parties, so that no single party gains or loses from the making of tough choices.
Lastly, taxes also have to be on the table. Both candidates promised over $350 billion in annual tax cuts. The unfortunate truth is that tax increases are in the future, and the smartest approach to dealing with the inevitable is to consider how to simplify and modernize the tax code in a way that could bring in more revenues without harming the economy.
The work does not stop there. The major fiscal threats of Social Security and healthcare costs were not discussed enough during the campaign. Reforms will have to be made, growth in benefits will have to be slowed, and raising the retirement age should probably be considered.
This is not exactly the job the new president signed up for, but this is the card he was dealt. Ignoring our burgeoning budget problems could lead to the next economic crisis. The first test of real leadership will be whether President McCain or President Obama confronts these challenges head on.
The United States faces serious fiscal challenges. Large budget deficits have returned, and shifting demographics along with growing health care costs are putting intense pressure on the long-term federal budget outlook. Over time, sustained deficits will weaken the economy and adversely affect the American standard of living.
The two major political parties' presidential candidates are campaigning on a lengthy list of policy initiatives, most of which would have significant impact on the federal budget. While not all of these proposals will become law, they do reflect the candidates' values and priorities, and the policies each candidate is likely to pursue once in office. In addition to these new initiatives, a number of outstanding tax and budget issues exist that will need to be addressed, such as which of the 2001 and 2003 tax cuts should be made permanent, how to fix the Alternative Minimum Tax, what to do about growing entitlement spending, how to control health care cost growth, and how to pay for the wars in Iraq and Afghanistan. The next president will face difficult fiscal challenges. It is therefore critical that voters understand the potential budgetary impacts of the candidates' plans.
US Budget Watch's report, Promises, Promises: A Fiscal Voter Guide to the 2008 Election--with an updated (10/31) section on the candidateswill help voters find their way through the thicket of policy proposals put forward by the likely Republican candidate for president, Senator John McCain, and the likely Democratic candidate for president, Senator Barack Obama. It presents a capsule summary of the candidates' major policy proposals and includes an estimate of the likely fiscal impact of each proposal. The guide is not intended to express a view for or against either candidate or any specific policy proposal. This report will be followed by other more detailed reports on the candidates' tax and spending proposals.
New York Daily News | October 14, 2008
The agreement on the $700 billion bailout package begs the question, "How are we going to pay for all this?"
In the three presidential and vice presidential debates to date, the candidates have done their best to dodge the question. But it is not an issue that can be ignored for long. For anyone who needs to be reminded of the dangers of excessive borrowing, they need not look any further than the crisis we are currently in the midst of.
One of the many lessons from the spectacular financial market implosion is the importance of having a federal budget that is in good enough shape to respond to national crises as they come along. Whether it's a war, a natural disaster or a financial crisis, the government needs to maintain a balance sheet that is strong enough to meet national needs.
Unfortunately, years of deficit spending have led to a weakened position for our government. The wars in Iraq and Afghanistan? We are borrowing to pay for them. New spending for prescription drugs, homeland security, roads, farmers and more? Borrowed funds. New rounds of tax cuts each year? We put them on the tab. As a painful reminder of all this borrowing, the national debt clock just ran out of space as we passed the $10 trillion mark; now we have to pay to add a new zero.
And ironically, because of all this irresponsible borrowing, the very package crafted to save the economy could actually harm it.
Since the government doesn't have $700 billion lying around, a critical question will be whether or not our lenders are willing to front us the hundreds of billions of dollars needed to recapitalize our flailing financial sector. This line of credit will have to come on top of the more than $400 billion we are already borrowing this year alone. And since Americans don't have sufficient savings, we will have to turn to our overseas lenders to help cover those costs.
If they become skittish about sinking more money into the U.S. when they are not yet confident where our economy is headed, we will need to raise interest rates - the amount we pay for borrowed funds - to attract the needed capital. This in turn will increase the cost of private borrowing for everything from homes to cars to small business investments; even credit card rates will go up. Instead of borrowing, we could simply print money (a scenario being discussed in many financial circles), but this would greatly devalue the currency and lead to a reduction in the value of Americans' savings.
Critical in avoiding either of these outcomes will be a credible commitment to strengthening the U.S.' fiscal balance sheet at the same time we attend to the balance sheets of the financial sector.