Budget Update -- And So Budget Season Begins

The President’s budget projects a decline in the deficit from $423 billion in FY
2005 (3.2% of GDP) to $205 billion in FY 2011 (1.2% of GDP). The President has
proposed further savings in mandatory spending this year—a positive step.
However, the proposed savings in mandatory spending programs and the cuts in
non-defense discretionary spending programs would be more than offset by the tax
cuts and other increases in spending. Though the deficit is projected to decrease
under the proposed budget in the short-term, the President’s policies would actually
increase the deficit over the five-year window from what it would otherwise be.

Furthermore, the budget relies on a number of unrealistic assumptions and gimmicks to limit the size of the proposed deficit. While the budget includes the
full costs of expected military operations in Iraq and Afghanistan for FY 2006, the
placeholder for costs in FY 2007 will not be sufficient. Additionally, the budget
only has a one-year patch for the Alternative Minimum Tax in 2006. Under more
realistic assumptions that include costs for Iraq and Afghanistan and remove the
revenue windfall from the AMT after 2006, the projected deficit would be nearly
$500 billion higher over the next five years. The President’s policies would
increase the deficit by $470 billion above OMB estimates of current law between
2006 and 2011, including $179 billion for extension of expiring tax cuts, $124
billion in additional tax cuts and $143 billion in spending for Iraq and Afghanistan
as well as further Katrina relief. Table 1 shows the impact of the President’s
policies on the deficit.

While the Committee for a Responsible Federal Budget is encouraged that the
Administration continues to highlight the goal of deficit reduction, the current goal
of cutting the deficit in half by 2009 is not only compromised by the unrealistic
assumptions in the budget, it is far too timid given the fiscal challenges facing the
nation. Furthermore, as the Administration has pointed out, the long-term
challenges are even more severe than the short-term, yet under this budget, the
deficit would begin to increase again after 2010 as the costs of the baby boom
retirement and the additional tax cuts begin to hit the budget.

For the complete document, please see the attached PDF version below.