February 03, 2015
Give the NYT credit, it is trying to write about the budget in a way that doesn’t just bury people in really big numbers. Its main article on President Obama’s budget included several references that indicated how large various items were relative to the size of the economy and used other comparisons to place them in a context that could make them understandable to readers. This is a good start, but it could be better.
One item that readers would miss in this piece is any sort of historical comparison. This is important because the piece notes Obama’s proposed increases in spending, but readers may not realize this is against a baseline of large cuts. The key area for increases is discretionary spending, both domestic and military. Obama proposes to increase spending in each area by less than 0.3 percentage points of GDP. This implies that spending in both areas will fall to close to 2.5 percent of GDP by the end of the 10-year horizon.
By comparison, spending in both areas had always been far higher as a share of GDP. Military spending had averaged well over 5.0 percent of GDP in the 1970s and 1980s during the cold war years, but declined to 3.0 percent by 2000 before again being ramped up as a result of the wars in Afghanistan and Iraq. Domestic discretionary spending averaged 3.9 percent of GDP in the 1980s and 3.4 percent in the 1990s and well over 4.0 percent in the 1970s. Before the downturn the Congressional Budget Office (CBO) was projecting that domestic discretionary spending would be close to 2.8 percent of GDP by the end of this decade. This means that even with the increases proposed by President Obama he would still be spending less than the baseline path that CBO envisioned when President Bush was in the White House.
On another matter, the piece lists Social Security as a long-run driver of the deficit, along with Medicare. This comment needs qualification. Under the law, Social Security cannot spend any money that is not in the trust fund. This means that it cannot legally be a driver of the deficit. CBO departs from the law in its long-term projections in assuming that Social Security payments will be paid in full even when there is not enough money in the trust fund to pay full benefits. This would not be legally possible. Congress would have to change the law to either allow allocate more money to the program or cut benefits.
This projection contradicts normal CBO practice of assuming that current law is followed. More importantly it is likely to confuse the public about the relationship of Social Security to the deficit. Under current law, it cannot lead to a deficit in the budget since it can only spend from its trust fund. (Trust fund spending is counted in the unified budget, but is officially “off-budget.”) This could change, but only if Congress were to change the law.
The headline is also misleading by referring to Obama’s “unfettered case for spreading wealth.” The biggest tax increase in his proposal, the rise in the tax rate on dividends and capital gains to 28 percent, is just raising the tax on these forms of income to the level they were set at under President Reagan’s 1986 tax reform. (This was coupled with a reduction in the tax rate on ordinary income.) His proposal to corporate income reported overseas is simply an effort to close a loophole used by corporations who prefer not to pay taxes. This is simply an effort to avoid turning the corporate income tax into a voluntary payment.
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