Last but Not Least – The Final Installment of the FY 2010 Budget
Last week, we also released the Budget Appendix, giving program-by-program information on the Administration’s policies, and also Terminations, Reductions, and Savings, identifying roughly $17 billion in savings for FY 2010 that the Administration has proposed by eliminating or scaling back over 100 programs that don’t work or whose costs are excessive.
These volumes give the complete details for the Administration’s Budget submission and are almost completely in-line with the Budget overview that the Administration submitted in February.
The Budget volumes contain a vast amount of information, which can be daunting to even the most avid budget wonk. Here, I want to boil down how these new Budget volumes compare to the overview released in February, and how this Budget now fits into the ongoing budget process.
Full Budget Compared to February’s Budget Overview
First, let me discuss two changes compared to the February overview:
Deficit projections. OMB projects that the deficit will be about $90 billion higher in FY 2009 and also in 2010 than it did in February. The deficits in these years, now projected to be 12.9 percent and 8.5 percent of GDP, respectively, are driven in large part by the economic crisis inherited by this Administration.
The change in the deficit estimates reflects upward technical revisions in light of new information regarding the collection of receipts, financial stabilization efforts, and other federal programs. (Technical revisions reflect additional data on, or expected changes in, government receipts or expenditures, other than because of changed assumptions about major macroeconomic variables such as the size of the economy, the rate of inflation, or the unemployment rate. The latter are called economic revisions.) Treasury now estimates that overall federal revenue will be less than was projected in February by between $30 billion and $50 billion in each of this year and next. We also have more information about the severity of the financial crisis facing the nation, and this is reflected in new, higher estimates for the cost of financial stabilization efforts undertaken through TARP and by the FDIC.
Over the 10 years from 2010-19, cumulative budget deficits increase by about $140 billion, or an average of about 0.1 percent of GDP. This is largely due to Treasury’s technical revisions of lower projected receipts.
Health reserve fund. The Administration has made a historic commitment to health reform by putting on the table $635 billion in savings to be devoted to paying for health reform this year. The health reserve fund is almost exactly the same size as it was in the in the February overview and is still about evenly divided between Medicare and Medicaid savings and additional revenue. But, as I have discussed elsewhere, the composition of the additional revenue measures has now changed somewhat, with the addition of new enforcement measures and loophole closers to make up for technical re-estimates of the original proposal.
Second, there are many aspects of the Budget that remain the same as in February. Perhaps most importantly:
Key priorities. The Budget provides many new details that were not available in February, but the Budget’s key priorities—and the resources devoted to them—are almost exactly the same as in the February overview. The Budget continues to call for significant and long overdue investments in education, health care reform, and clean energy, while cutting the deficit in half over four years and providing a tax cut to 95 percent of working Americans.
Economic assumptions. The economic assumptions remain the same as in February. The economic assumptions will be revisited as part of the Mid-Session Review this summer, which is the traditional point at which an administration updates its underlying economic assumptions to reflect new information.
The Budget documents released today include a sensitivity analysis, describing the effects of alternative economic assumptions on budget projections. These can be found in Chapter 12 of Analytical Perspectives.
Where This Fits in the Budget Process
The recently passed Congressional budget resolution and the full Budget being released now are both essential documents in the ongoing budget process, but they serve somewhat different functions. The budget resolution sets out a broad framework for Congress to make decisions about specific revenue and funding policies for the remainder of the budget process, whereas the President’s Budget sets out the Administration’s proposals on a program-by-program basis and is the starting point for negotiations over specific appropriations and other fiscal policies.
Even if they aren’t carbon copies, the budget resolution and the full Budget approach many of the Nation’s key challenges in very similar ways—both cut the deficit in half by the end of the President’s first term, while making investments in health care, education, and clean energy. We expect to work closely with Congress in the weeks and months ahead to reach solutions that will meet these priorities and put our Nation on a course toward economic recovery, fiscal discipline, and a new foundation for economic growth.
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