Tuesday, February 2, 2010

Getting "serious" about the deficit

The green line shows deficits as proposed by President Obama last year. The blue line shows deficits as proposed by President Obama this year. The dotted yellow line shows the deficit consistent with holding federal debt (as a share of GDP) constant.

We can draw five important conclusions from this graph:

1. At 8.3% of GDP, the proposed budget deficit for 2011 is still extremely high.
2. President Obama is proposing larger budget deficits than he did last year.
3. For 2011, the most relevant year of this proposal, the President is proposing a budget deficit that is 2.3 percentage points higher than he did last year (8.3% vs. 6.0%).
4. Using his own numbers, the President’s proposed budget deficits will cause debt as a share of the economy to increase.
5. Under the President’s proposal, budget deficits begin to increase as a share of the economy beginning in 2018.

We can draw two conclusions from this graph:

1. Taxes are low now, but are scheduled to increase to above historic averages.
2. The President is proposing slightly lower revenues over the next few years than he proposed last year, but essentially no difference in the long run.

We can conclude:

1. The President is proposing significantly more spending than he proposed last year: 1.8% of GDP more in 2011, and roughly 1 percentage point more each year over time.
2. Spending is and will continue to be way above historic averages.
--Keith Hennessey on taxing more and spending even more. HT: All over the blogosphere

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