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Financial Planning > College Planning > Student Loan Debt

Obama Budget 'Falls Short' of Ryan, Fiscal Commission Proposals, Bipartisan Report Says

By Melanie Waddell

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A new analysis of President Obama’s deficit reduction plan by the bipartisan Committee for a Responsible Federal Budget says that while the President’s framework to reduce the deficit by $4 trillion over 12 years is a “substantial improvement” over Obama’s February FY2012 budget request, it nevertheless "falls short” of the total debt reduction proposed by the Fiscal Commission and the House budget resolution for FY 2012, which is based on the proposal crafted by House Budget Committee Chairman Paul Ryan, R-Wis.

The proposal by Ryan passed the House on April 15. The Senate did not vote on the House measure. Senate Budget Committee Chairman Kent Conrad, D-N.D., will put forth a FY2012 budget proposal “in the next month or so,” according to a spokesperson for Senate Majority Leader Harry Reid, D-Nev.

The Committee notes in its analysis that the $2.5 trillion in deficit reduction in the President’s framework “represents a substantial improvement from the President’s February budget–which essentially includes no deficit reduction relative to the adjusted baseline (and therefore increases the debt to 87% of GDP).” However, the President’s framework fails to match the recommendations of his own appointed Fiscal Commission, led by Erskine Bowles and former Senator Alan Simpson, and those from the House Budget Committee, both of which would reduce the deficit by over $4 trillion and reduce the debt to below 69% of GDP by the end of the 10-year period.

The House budget “saves substantially more from non-security discretionary, health care, and other mandatory spending than does the

President’s Framework, while the Fiscal Commission plan saves more from security discretionary, health care, Social Security, and tax reform,” the analysis states. However, “the President’s Framework and the Fiscal Commission both propose special processes for ensuring debt is at least stabilized–or falling, under the President’s Framework–as a share of the economy in the second half of the decade.”

The Committee said its analysis found that:

  • The Administration estimates that the President’s Framework would save $4 trillion over 12 years when compared to an adjusted baseline that assumes tax cut extensions for those making below $250,000 per year, lower war costs, and annual doc fixes.
  • Because much of the savings would come in the last years of the 12-year period, the administration assumes $2.9 trillion in savings over the standard 10-year period using Office of Management and Budget (OMB) projections.
  • However, when using Congressional Budget Office (CBO) numbers to construct an adjusted baseline, the analysis puts the savings at $2.5 trillion over 10 years.
  • Compared to current law (which assumes the expiration of all the 2001/2003/2010 tax cuts as well as the expiration of other current policies), the President’s Framework would actually increase deficits by $250 billion over 10 years.

White House spokeswoman Amy Brundage told The Washington Post that the Committee’s analysis relies on economic forecasts by the Congressional Budget Office that are "less optimistic" than forecasts made by the White House budget office.

Brundage told The Post that under the Administration’s estimates, the president’s framework would save a total of $2.9 trillion over 10 years and $4 trillion over 12 years. Plus, she said, if the CBO’s projections are used, “the president’s framework would save more, not less, than these totals” because the 'debt failsafe' would be triggered, resulting “in the additional savings needed to reduce the debt as a share of the economy.”

According to a White House fact sheet, the "debt failsafe" works like this: If by 2014, budget projections do not show that the debt-to-GDP ratio has stabilized and will decline for the second half of the decade, the failsafe will trigger an across-the-board spending reduction.

The Committee notes in its analysis that while the deficit reduction achieved by the President’s Fiscal Commission–$4 trillion over ten years–is “the appropriate standard to strive for,” using (CBO) assumptions, “it appears unlikely that the policies proposed in the President's Framework would be sufficient to reduce debt to a manageable level–at least not without further action spurred by the proposed Debt Failsafe” Thus, the Committee continues, “we believe the President should work with Congress to offer additional savings on top of what he has already proposed.”

To the Administration's credit, the Committee goes on to say, “they do propose a budget process to ensure a stable debt to-GDP ratio even if

their policies do not achieve this. A well designed Debt Failsafe such as the one they have proposed could be a powerful and useful tool to help ensure the debt remains under control and to help encourage policymakers to propose additional deficit reduction policies."

The Committee analysis also praises Obama’s deficit reduction plan for “moving the ball forward,” and providing a “balanced approach to begin improving the nation’s finances.” This is particularly critical now, the Committee notes, as recent warnings from Standard & Poor’s and others “have made it clear that the United States has limited time to prove to the markets that we are serious about putting our fiscal house in order.”

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