Today, the Congressional Budget Office (CBO) released its preliminary analysis of the President’s FY 2012 budget.
Their analysis leads them to a different projection of the deficit picture, and it’s worth understanding our analytical differences.
There are two main reasons why our projections differ. First, is that the CBO re-estimate does not reflect two important budget policies. In the budget, the President laid out a plan to make a historic investment in our transportation infrastructure in order that our country can keep pace with our competitors in the global economy. We were crystal clear that this spending had to be paid for with a bipartisan funding source and that if one was not identified, that the Administration would not support making these investments. This way there would be no risk that this spending would add to the deficit. CBO chose to treat this spending as a free-standing initiative, not in tandem with our commitment to pay for it – which is not the policy we proposed.
Similarly, the budget proposes that we fully pay for the cost of fixing the Medicare physician payment formula so that reimbursement rates are not cut dramatically which could lead to doctors refusing to treat Medicare beneficiaries. In past years, this fix was not paid for, but last year, the President signed into law a fully paid for fix for one year, and our budget identified tens of billions of dollars in specific health care savings that will pay for another two years. With three years of the fix paid for, we believe that this establishes a pattern of practice – critically important in scoring policies -- that strengthens our commitment to work with Congress on a permanent solution. Again, CBO chooses not to make this assumption.
The second main difference between our and CBO’s analysis is that our economic assumptions differ. The economic forecast in our 2012 Budget, which was prepared in November 2010, is actually more cautious than the consensus forecast for 2011, and is well within the range of the Federal Reserve’s assumptions in all years. Beyond the short-term, we believe that the economy will fully recover after this recession as it has after previous ones. It is our view that the economy will return to full strength, and that is a view shared by the Federal Reserve as well.
There is large uncertainty in economic projections and differences of opinion when it comes to assessing individual policies. But regardless of our differences, CBO confirms what we already know: current deficits are unacceptably high, and if we stay on our current course and do nothing, the fiscal situation will hurt our recovery and hamstring future growth. That is why the President’s 2012 Budget puts forward more than $1 trillion of deficit reduction including a five-year freeze in annual domestic spending that will save more than $400 billion over the next decade, and puts the nation on a sustainable fiscal course. And that is why we are committed to making real progress on our fiscal situation this year and not put off action any longer. As this debate continues, we look forward to working with people from across the spectrum to rein in our deficits, grow our economy, and win the future.
Jack Lew is the Director of the Office of Management and Budget