Leading experts weigh in on current policy issues and challenges

Experts weigh in: President Obama’s budget proposal.

The details of the president's tax proposals are not out yet. The most interesting proposal appears to be the increase in the EITC for workers without children. The current law credit is tiny and few workers without kids qualify. The proposal would double the rate of the credit and increase the income level at which it phases out, helping many more workers. It would also make it available to workers ages 21 - 24 or 65-66, who are currently ineligible. Evidence suggests that it would encourage labor force participation, especially for very low income single people without kids and there's some bipartisan support. Marco Rubio has endorsed the concept.

Jason Furman and CEA have nice paper on the proposal.

This conversation originally appeard on Branch on March 6, 2014. 

The Urban Institute is talking with...
C. Eugene Steuerle C. Eugene Steuerle
Erika C. Poethig Erika C. Poethig
Marc Goldwein Marc Goldwein
William G. Gale William G. Gale
Howard G. Gleckman Howard G. Gleckman
Robert D. Atkinson Robert D. Atkinson
Chris Edwards Chris Edwards
Leonard E. Burman
Moderated by:
Leonard E. Burman
Director, Urban-Brookings Tax Policy Center
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Our initial blog post on President's budget is available here. It reduces but doesn't eliminate the reductions from sequestration; spends new money on transportation infrastructure, universal pre-school, and an expanded EITC; it calls for corporate tax reform and immigration reform; it reduces spending in Medicare; and identifies other targeted spending cuts; and it raises a substantial amount of revenue -- especially from higher earners. 

Importantly, the budget abides closely to "pay-as-you-go" principles and fully pays for the costs of its new initiatives. By our calculations, it also includes a net of more than $700 billion in deficit reduction.

I had a sense that HUD's budget would place an emphasis on federal rental assistance, it looks like this is the case. Yesterday, Urban introduced a new tool that shows the impact of federal rental assistance on the supply of affordable housing for extremely low-income households (ELI). Without assistance, there are almost no units -- in the country -- affordable and available for ELI households: We've mapped America's rental housing crisis

It seems to me there is less here than meets the eye. Table S-2 lists $2.167 trillion in proposals over the decade. But $695 billion is reductions in overseas contingency operations, which everyone already expects to happen, and another $651 billion is tax increases -- restricting itemized deductions and adding a tax consistent with the Buffett rule -- which are not going to happen.

Bill, if we only count things that are going to happen this year I'd probably score the budget as a $15 billion spending increase paid for over ten years.

Also, I actually think the war gimmick is a little more complicated here than normal. On the one hand, we're already in the process of phasing down spending so to count this phasedown toward deficit reduction is silly. On the other hand, the President thinks that after spending $92 billion this year and $85 billion in 2015, we can spending $30b/year through 2021 and $0 after that. Color me skeptical that we will spend that little -- the President has always requested substantially more than his prior-year plug. And the next President will certainly not be bound by this President's war spending assumption.

A note of wild optimism: If you focus on the details rather than the big things, there is surprising overlap between the tax agendas of Camp and Obama, and even a bit of consensus between Obama and Ryan. There is a middle ground. It is just that nobody wants to play there. taxvox.taxpolicycenter.org

I'm going to brew a pot of coffee and search through the Treasury Green Book (describing the Administration's tax proposals in detail) for something interesting to write about. treasury.gov I'll be back.

Overall budget cuts investments significantly by 2024. Real NSF budget down 5 percent. Transportation down 6%. Energy down 8. Education down 12. Commerce down 13. Science budget is down about 30 percent from the 2008 goal of doubling science funding. Yet agencies with largely consumption budgets -- HHS, Ag and Veterans don't get any cuts. Despite talk about increased competitiveness corporate taxes go up 6%. Overall, discretionary spending down 22 percent by 2024, non-discretionary up 30 percent. Regardless of what this does to the debt/deficit, this is a budget of competitiveness decline and economic stagnation.

Despite some significant proposals, this budget is still largely ruled by agendas determined far in the past. Spending on health and retirement programs in need of reform and interest on the debt continues to eat up the proposed $1.3 trillion in additional revenues over 10 years. That leaves little for future Congresses and administrations to work with in responding to tomorrow’s challenges. A snapshot of the President's proposed budget over 10 years.

We've been giving the President a lot of credit for putting the debt on a clear downward path relative to the economy. But it looks possible or even likely that it won't do that when CBO rescores: CRFB-Simulated "CBO" Re-Estimate of the President's Budget

 

The Obama administration’s budget proposes that discretionary spending fall sharply as a share of GDP by 2024. I favor that drop, and I have proposed cuts to get us there.

But does the administration favor it? I don’t think so. They are cheating with accounting to make their 10-year budget numbers look better. The Republicans do the same thing in their annual budget blueprints. 

But this creates a problem. It suggests that that discretionary won’t fall as currently projected by OMB or CBO. So deficits will be much higher and debt will soar.

Working off the CBO baseline, here are the implications, based on my rough spreadsheet calculations.

By 2024, discretionary remains at the 2014 level of 6.9% of GDP and mandatory rises as projected by CBO to 13.9%. The higher-than-planned discretionary results in interest being 3.7% in 2024, rather than the CBO value of 3.3%. Total outlays in 2024 would be 24.5%. 

The deficit in 2024 would be 6.2%. Debt held by the public would be roughly 91% in 2024, not the 79% in the CBO baseline. Debt would be rising at about 3 points of GDP a year. 

Bottom line: If both parties remain uninterested in cutting anything, we’ve got a big fiscal crunch coming.