The $4 trillion gap: Obama vs. Ryan, an apples-to-apples budget comparison

April 20, 2011

OK, let’s try and actually compare the new Obama budget plan — “The Framework for Shared Prosperity and Shared Fiscal Responsibility” — with Rep. Paul Ryan’s “Path to Prosperity.” My calculations — partly based on work done by Goldman Sachs — find that the Ryan Path would save more than double, 130 percent. In dollars, it’s a difference of $3.9 trillion (nearly 2/3 from higher taxes, net interest expense savings).

1) Obama says his plan cuts $4 trillion in debt over 12 years vs. … something or other. Ryan says his plan cuts $4.4 trillion over ten years vs. Obama’s original 2012 budget from February.

2) To do an apples-to-apples comparison, it’s necessary to a) plot them over the same time span; b) compare them against the same baseline and c) adjust them for similar economic assumptions. Goldman Sachs does the first two steps for me. It plots both plans vs. what the CBO calls its “alternate” baseline — the one it thinks most likely. (For instance, it does not assume all the Bush tax cuts get repealed like the main CBO baseline does.) Goldman thinks that’s what the White House did, too.

3) Goldman Sachs also adds back in Obama’s pledge to let the top-end Bush tax cuts expire, something which isn’t clear from Obama’s speech or subsequent White House fact sheet. Here is the chart of Goldman’s findings:

goldmanchart

5) Those savings – 2.4 percent for Obama, 3.5 percent for Ryan — are over ten years vs. cumulative GDP of $196 trillion over 2012-2021 (not counting interest expense). In dollar amounts, that works to savings of $4.7 trillion for Obama and $6.9 trillion for Ryan. So the Ryan Path saves $2.2 trillion more.

6) But that’s not all! The Obama Framework likely uses the same higher growth assumptions as Obama’s February budget. When CBO re-ran that budget using its own gloomier forecast, it found the Obama plan raised $1.7 trillion less than it claimed. Ryan uses the CBO numbers. So a back-of-the-envelope estimate — adjusted for similar economic assumptions — finds the Obama Framework would only save $3 trillion vs. $6.9 trillion for the Ryan Path over ten years. And nearly 2/3 of Obama’s savings comes from higher taxes (net interest).

2 comments

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Two points:
1) Can you explain a little why you took the 2.4 number instead of the 3.4 number, it seems like your assuming the 2.4 because you assume Obama is not going to let the bush-era tax cuts expire (even though it seems like he pretty explicitly said he would).

2) You mention Obama’s rosy economic forecast, but you did not mention Ryan’s pretty unbelievable forecast
(from http://mobile.nationaljournal.com/budget  /ryan-plan-pushes-optimism-to-the-outer -limits-20110405)

“If Rep. Paul Ryan’s newly unveiled 2012 budget is signed into law, this is what Ryan’s economic forecasters say will happen: The unemployment rate will plunge by 2.5 percentage points. The still-sinking housing market will roar back in a brand new boom. The federal government will collect $100 billion more in income tax revenues than it otherwise would have.

And that’s just in the first year. By 2015, the forecasters say, unemployment will fall to 4 percent. By 2021, it will be a nearly unprecedented 2.8 percent.”

I don’t know if unemployment has ever been 2.8 percent. That seems very suspect to me.

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