The Committee for a Responsible Federal Budget sets out some useful analysis of the new White House budget numbers. One main finding is that the president's use of a 12-year budget timescale is a rather significant gimmick. His $4 trillion in savings over 12 years become $2.9 trillion over the standard 10 years; if you then use CBO figures, not White House figures, to reckon the "current policy" baseline, the amount of deficit reduction falls further, to $2.5 trillion. So it's untrue to say that the White House is proposing deficit reduction on about the same scale as the House budget or the Bowles-Simpson plan. The new framework also falls short of stabilising the debt-to-GDP ratio.
It's worth noting that, compared with a "current law" baseline, Obama's new plan actually adds slightly to the 10-year deficit. (His February budget added nearly $3 trillion to it, so he's moving in the right direction.) How can that be, when he calls for so many spending cuts and tax increases? It's because the cost of making permanent the Bush tax cuts for the middle class, as Obama proposes, is so high. Remember, current law provides for all the Bush tax cuts to be reversed, not just those for higher-income households.
CRFB likes the president's "debt fail-safe" trigger. Here is how the White House fact sheet describes it:
- A debt failsafe that will ensure that our nation's debt is on a declining path as a share of our economy. If by 2014, budget projections do not show that the debt-to-GDP ratio has stabilized and is declining in the second half of the decade, the failsafe will trigger an across the board spending reduction, including on spending through the tax code.
- The trigger will ensure that deficits as a share of the economy average no more than 2.8% of GDP in the second half of the decade.
- Consistent with prior fiscal enforcement mechanisms put in place by Presidents Reagan, George H.W. Bush and Clinton, the trigger should not apply to Social Security, low-income programs, or benefits for Medicare enrollees.
- The trigger should also include a mechanism to ensure that it does not exacerbate an economic downturn or interfere with our nation's ability to respond to a national security emergency.
The committee is keen on this approach, and has already suggested ways of firming it up. Alan Krueger wrote a column for the New York Times also welcoming the idea, and highlighting it as one of the most important things in Obama's speech: "a bold, serious, and timely proposal".
I'm not against fiscal rules in principle. They have worked in the past, after a fashion--and after a fashion is better than nothing. (This column by Jonathan Rauch will remind you how Gramm-Rudman and the pay-go rules that followed it worked in the late 1980s and 1990s.) But as Krueger says, the devil is in the details. Which categories of taxes and spending are included in the trigger? Is agreement on those categories going to be possible? How do you provide for sufficient flexibility in the event of another downturn?
Calling for the trigger to be introduced in 2014, not sooner, makes the idea look more like a delaying tactic than a serious proposal. But I'd be delighted to be proved wrong.