Taxes and the Budget: What is the short-term budget scenario?
The Congressional Budget Office (CBO) and, within the executive branch, the Office of Management and Budget (OMB) both produce short-term budget scenarios. CBO’s scenarios set the budget baseline: the starting point for congressional deliberations on budget policy. The baseline looks forward ten years and assumes that all policies continue as under current law. In contrast, OMB’s main scenario assumes implementation of all of the president’s proposals and covers only five years.
- CBO’s current baseline projections, published in March 2008 (see figure), show a unified budget deficit (that is, including the balance in the Social Security trust fund) of $357 billion in fiscal 2008, a surplus of $105 billion in 2012, and a surplus of $202 billion in 2018. CBO’s projections do not, however, consider the impact of extending any portion of President Bush’s tax cuts of 2001 and 2003, providing relief from the alternative minimum tax (AMT), or extending any of the many "temporary" tax cuts that are routinely renewed. The baseline also considers only a portion of the likely costs of the wars in Iraq and Afghanistan. Including these items could easily convert the small (0.6 percent of GDP ) surplus projected for 2012 into a deficit well in excess of $200 billion.
- OMB’s current five-year projections, published in February 2008 , also show a small surplus for 2012, and unlike the CBO projections they assume that the tax cuts of 2001 and 2003 are made permanent. (As estimated by CBO separately from its baseline projections, the revenue loss from extending the tax cuts is $250 billion in 2012.) The president makes a number of other tax proposals that are roughly revenue neutral in the aggregate. The most important-a reform of the tax treatment of employer-provided health insurance-would raise $24 billion in 2012. The president does not request appropriations for the wars in Iraq and Afghanistan beyond 2009, and he requests only one year’s relief from the AMT. Moreover, the president’s budget assumes that the Congress will cut nonsecurity discretionary spending by $56 billion below CBO’s baseline by 2012. This implies an absolute cut in such spending after adjusting for inflation.