The Real 2014 Budget Battle May Be Over Spending, Not Taxes
President Obama’s 2014 budget arrived two months late and was declared DOA by the House GOP leadership days before they even saw it. Yet, it is full of items of interest, including a new millionaire tax and a renewed proposal to limit the value of tax preferences for high income households.
But what about the bottom line? How does Obama’s latest tax and spending plan compare to the versions already passed by the Democratic Senate and the Republican House? There are massive differences between the President and the GOP over the size of government and its spending priorities. But, remarkably, for the all the heated rhetoric, the gap between the 2014 revenues in Obama’s budget and those of the House is vanishingly small.
To be sure, that fissure widens significantly over the years. But for 2014 at least, the amount of money Obama and the House would raise is surprisingly similar.
The real differences between Obama and the GOP, at least in the short run, are not about total revenues at all. They are about who would pay those taxes.
To avoid inevitable and ultimately fruitless arguments about baselines, I didn’t compare how much these budgets would change spending or revenues. Instead, I looked at how much money each would collect in revenues and how much it would spend in 2014 and in 2023, in nominal dollars and as a share of the Gross Domestic Product.
First, take a look at what happens in 2014:
Since there is almost no chance of a fiscal Grand Bargain, Obama and Congress will spend most of the coming months arguing over the budget for the coming fiscal year only. In 2014, Obama would spend almost $3.8 trillion or 22.2 percent of GDP and collect $3.034 trillion or 17.8 percent of GDP in revenues, creating a deficit of 4.4 percent of GDP.
By contrast, the House budget would spend about $3.5 trillion, or 21.2 percent of GDP in 2014, and it would collect $3.003 trillion in revenues, or about 18 percent of GDP, creating a deficit of about 3.2 percent of GDP, or $530 billion.
The Senate budget framework would spend about $3.7 trillion, or 22.3 percent of GDP, and raise $3.023 trillion, for a deficit of about $700 billion.
Instead of rounding the revenue estimates, I used the exact numbers in each budget to make the obvious point: For 2014, at least, the revenue differences among the three fiscal plans are a rounding error –the federal equivalent of lost change in the sofa cushions.
At least when it comes to the budget for 2014, Obama and the House Republicans have gone to the mattresses over $21 billion–a tiny fraction of the $3+ trillion the government will collect.
There is a real difference when it comes to spending, of course. Obama would spend about $250 billion more in 2014 than the House GOP and about $60 billion more than the Senate.
Now, take a look at 2023:
The picture is very different when you look out 10 years. By 2023, Obama would raise and spend far more than the House GOP. He’d raise a bit more and spend a little less than the Senate.
By 2023, Obama would spend about $5.7 trillion or 21.7 percent of GDP, while raising about $5.2 trillion or 20.0 percent of GDP, leaving the nation with a deficit of about $440 billion or 1.7 percent of GDP.
Most economists would say that’s pretty manageable, if it could be sustained. But the House budget describes a very different vision. It would wipe out the deficit. But more important, it would slash spending in 2023 to just 19.1 percent of GDP (with revenues obviously the same).
The Senate would more or less split the difference. It would raise about 19.8 percent of GDP in revenues—more than the House, but not wildly more. Here too the biggest difference is in spending, where the Senate calls for 21.9 percent of GDP in 2023 outlays, almost three full percentage points or about $800 billion more than the House.
It appears that none of these three budgets is going anywhere. Yet they tell an important story about where the big differences lie between Obama and congressional Republicans—and where they do not.