A $2 trillion 'make-up' call

The Obama administration's low estimates for future deficits aren't sneaky, they're just overly optimistic.

Following up on my post from last Friday on CBO’s analysis of the President’s budget, let me explain that the Obama Administration’s seemingly low-ball estimates of deficits under their own proposals isn’t so much a case of (very) “dynamic scoring” as a sort of “make-up call.”

I thought I’d provide some apples-to-apples numbers to help see what’s going on. Recall that CBO scores the ten-year deficit under the President’s proposals at $9.470 trillion, while OMB (the Administration) says it would be only $7.205 trillion–a more than $2.2 trillion difference. It turns out that most of this difference is due to the Administration’s much rosier assumptions about the pre-policy baseline and the level of revenues that would be collected under current law. The CBO and OMB estimates of the cost of the President’s tax proposals (or more accurately, the net revenue loss under the President’s budget compared with current law) are actually very similar.

So here are the relevant numbers, all for the ten-year period of fiscal years 2012-21. The CBO numbers come from their analysis linked above, and the OMB numbers come from the summary tables in the President’s budget:

• CBO (all found in their Table 1): Revenues under the current-law baseline: $39.032 trillion;
• Revenues under the President’s FY2012 budget: $36.702 trillion; so…
• Difference (net revenue cost of President’s proposals): $2.330 trillion.
• OMB: Revenues under their “adjusted” baseline (from their Table S-3): $37.928 trillion;
• BUT this adjusted baseline took out $3.070 trillion in extended tax cuts that they count as “current policy” (see Table S-7); so…
• Implied revenues under current law (add the $3.070 trillion back in): $40.998 trillion;
• Revenues under the President’s FY2012 budget (from Table S-1): $38.747 trillion;
• So, note, difference from current law due to the President’s proposals ($40.998 - $38.747): $2.251 trillion. (Pretty darn close to CBO’s $2.330 trillion–only $79 billion (over ten years) apart.)
• Difference between assumed current-law baseline revenues (OMB minus CBO): $1.966 trillion.

So, out of the $2.2 trillion difference between CBO and OMB estimates of ten-year deficits under the President’s proposals, nearly $2.0 trillion comes not from differences in their cost estimates of the tax-cut proposals nor from differences in how effective those tax cuts might be in growing the economy/changing the economic forecast (”dynamic scoring”–which isn’t done in these budget forecasts anyway), but rather from the differences in how strong they think the economy and therefore the levels of revenues would be even with no change in tax policy.

So it’s not anything sneaky or sinister buried in the Administration’s estimates, but it’s just a very optimistic view, for sure, and it certainly serves as a sort of “make-up call” in that the $2.0 trillion in “rosier scenario” effectively covers about 85-90 percent of the cost of President Obama’s proposed extension of what used to be the (Obama-labeled “fiscally-irresponsible”) Bush tax cuts.

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