A transparent budget proposal—such as the Administration’s first 2012 Budget presented by President Obama on February 14 or the House Budget presented by Paul Ryan on April 6—contains year-by-year tables showing the proposed path for government outlays over time. These are needed to estimate the economic impact of a budget and assess its credibility.
But the second Administration budget for 2012 and beyond presented by President Obama this week contains no such information, either in the speech or in the fact sheet to go along with the speech. How can one determine the impact of a budget on the economy if one does not know the path of proposed spending? This lack of transparency is not simply an issue for policy wonks as William Galston of Brookings explains in his critique of the Administration’s Budget II. It raises questions about the credibility of the budget process.
To illustrate the issue in concrete terms I “reverse engineered” one possible year-by-year path for government spending over the next ten years that is consistent with the information in the speech and the fact sheets on the Administration’s Budget II. In particular the path reduces the deficit by $4 trillion over 12 years compared to Budget I and there are three dollars of spending cuts and interest savings for every one dollar of tax increases. In other words, under Budget II, spending would be down by $3 trillion relative to Budget I over 12 years. The resulting path is one of several possibilities because one cannot go uniquely from a multiyear total to year-by-year amounts. The path calculated here for Budget II may have more spending up front and less in the out years compared with actual Budget II, but we do not know for sure because the budget is incomplete as presented.
The path for government outlays as a share of GDP under Budget II is shown in this graph along with the Administration’s Budget I, the House Budget, and recent history. The graph focuses on the next 10 years because that is the frame of reference for Budget I, the House Budget, and the current budget process. It is important to note, however, that my calculations imply that $1 trillion of the $3 trillion outlay reductions in Budget II compared with Budget I occur in the two years after the 10 year window. So in reality the proposed reduction in spending growth is $2 trillion rather than $3 trillion.
There are several implications of these calculations. First, if you view Budget I as an opening to a negotiation and the House Budget as a counter offer, then Budget II has moved in the direction of the counteroffer. But it is a relatively small move compared to the outcome of the 2011 negotiations, where the Administration moved two-thirds ($39 billion of $61 billion) in the direction of the House proposal. But stay tuned.
Second, the new Budget still leaves a great deal of the recent spending binge in place, at 22.3 percent of GDP compared with 19.6 percent in 2007.
Third, if the Administration wants Budget II to be part of the negotiations, then OMB should either submit a revised budget to replace the one sent to Congress on February 14 or provide the needed transparency in some other way.