(Photo: REUTERS/Larry Downing)
The nonpartisan Congressional Budget Office released an analysis of the economic impact of President Barack Obama's 2013 budget proposal Friday. The report estimated that Obama's proposals would give the economy an initial boost, but that boost would come at the cost of decline in later years due to increased deficit spending.
For the first five years, 2013-2017, CBO estimated that the nation's economic growth would range between 0.2 percent lower to 1.4 percent higher than under current law. In the second five years, economic output would decline by somewhere between 0.5 percent and 2.2 percent.
Under current law, tax cuts that were initially passed during the George W. Bush administration and extended in 2010 would expire at the end of 2012. Obama's budget would increase deficits by making the tax cuts for all but the highest bracket permanent.
Preventing those tax increases is what will help the economy initially, but the increased deficits that result from lower government revenue will hurt the economy in later years. The CBO estimated that Obama's budget would add $6.4 trillion to the national debt over 10 years, which is $3.5 trillion more than under current law.
"For the 2013–2017 period, ... , the President's proposals would increase real (inflation-adjusted) output (relative to that under current law) primarily because taxes would be lower than those under current law, and, therefore, people's disposable income and their demand for goods and services would be greater. Over time, however, the proposals would reduce real output (relative to that under current law) because the deficits would exceed those projected under current law, and the effects of increasing government debt would more than offset the favorable effects of lower marginal tax rates on labor income," the CBO wrote.
The president is required, under the Budget and Accounting Act (1921), to submit a budget to Congress every year. That budget, typically, becomes the starting point for the federal budget.
Under the Budget and Impoundment Control Act, Congress is also required to pass a budget each year. The Senate, however, controlled by Democrats, has not passed a budget since 2009.
The Republican-controlled House passed a budget last month. It too would make the tax cuts permanent, including the top rate. It also includes more spending cuts than Obama's budget.
The House voted last month on Obama's budget. It failed 0-414. Congress typically does not vote on the president's budget. The vote was a political stunt intended to bring attention to the lack of support for the budget in the House.
The Obama and Republican budgets have become a focal point in the 2012 presidential race. In an April 3 speech, Obama said the Republican budget is a dishonest attempt to help the rich at the expense of the poor. Mitt Romney, the Republican Party's presumptive presidential nominee, has embraced the Republican budget and argues that Obama's policies have worsened the economy.