Reviewing the Review: How Does It Compare to the President's Budget?

OMB's Mid-Session Review, which was released on Friday, showed lower debt and deficits over ten years than did the President's budget. Our paper on the MSR also went into (mostly) economic and technical reasons why the MSR estimate differed from the February estimate of the President's budget.

Much of it has to do with lower projected interest rates, which reduces spending on interest on the debt. In addition, lower projected health and food price inflation has reduced spending in Medicare, Medicaid, and food stamps, while lower enrollment has reduced projected spending in Social Security and unemployment insurance. On the revenue side, lower than expected economic growth has reduced how much the government is projected to bring in.

One big difference between February and now is about $150 billion less in spending/tax cuts for jobs measures. This is mostly because that amount went to extensions of the payroll tax cut and unemployment insurance which passed shortly after the Budget's release. In addition, some policies having later start dates results in lower costs being recorded.

Related to the payroll tax cut/UI extension, some offsets from the President's budget were used up to partially offset those costs and the cost of the transportation bill. Thus, policies such as increasing federal employee retirement contributions, auctioning spectrum, cutting Prevention and Public Health Fund spending, and increasing Pension Benefit Guaranty Corporation premiums have either disappeared or have had their savings reduced. Overall health and other mandatory spending savings dropped by $80 billion due to the already enacted policies and the previously mentioned lower baseline health spending growth.

On the tax side, the revenue-raisers overall raise slightly less than previously projected by about $30 billion. Presumably, this is due to lower projected growth, which reduces the revenue raised from provisions targeting high-income earners. Allowing the upper-income tax cuts to expire will now raise about $15 billion less than previously expected ($950 billion vs. $965 billion) and other revenue proposals will now raise about $15 billion less ($945 billion vs. $960 billion).

^{Source: CBO, OMB, CRFB calculations
^This number accounts for a $45 billion timing shift of payments in 2022, although none of the subtotals include this shift}

The overall result is that the President's total savings have gone down by about $120 billion; however, when including the effects of the jobs proposal in 2012, the MSR projects savings that are about $60 billion higher than the President's budget from 2012-2022.

Either way, though, the amount of savings is not enough to put our debt on a clear downward path over the long term. As we said:

With a fiscal cliff looming at the end of the year, the next several months present an opportunity for policymakers to work together on a sensible plan to both avoid the fiscal cliff while also controlling rising debt. The strength of the American economy and standard of living will suffer if they do not.