The Congressional Budget Office released new figures on the federal budget yesterday, which show that the deficit will peak in 2009 at $438 billion and decline thereafter. But budget watchers and CBO economists know that these “baseline” projections don’t describe actual budget realities.
So I constructed a “business as usual” scenario for revenues and spending to get a sense of the fiscal picture that the next president will actually face. The figure illustrates that it will be much easier being the president who enters office in 2009 than the one who enters office in 2013.
The revenue line in the figure assumes that all current tax cuts are extended and the alternative minimum tax is indexed for inflation. Extended tax cuts include income tax rates, dividends, capital gains, child credit, death tax, expiring business breaks, and other items.
The spending line assumes that discretionary spending rises as fast as GDP, the number of troops in Iraq and Afganistan is reduced to 30,000 by 2011, and Medicare payments to physicians are not cut back after 2010 as under the baseline. These adjustments are based on CBO data. I also estimate the extra federal interest costs of these assumptions.