There's good news.. and bad news. CBO has just released its 'score' of President Trump's proposed budget, noting that the plan would shrink the deficit by a half from their baseline by 2017 (good news). However, even accepting Trump's dynamic scoring and 5% growth expectations, CBO is unable to balance the budget and Yellen's recent "US debt is unsustainable" warning seems ever more prescient.
Trump's budget would shrink notably from the CBO baseline...
According to CBO’s estimates, the deficit would fall from the $693 billion projected for 2017 to $593 billion in 2018 under the President’s proposals. After that, the deficit would generally rise, totaling $720 billion in 2027. The cumulative deficit over the 2018–2027 period would total $6.8 trillion. Measured as a percentage of output, the deficit would decline from 3.6 percent of GDP in 2017 to 2.6 percent at the end of the period. The deficit would average 2.9 percent through 2027. (The average deficit over the past 50?years has equaled 2.8 percent of GDP.) Those estimates exclude any macroeconomic feedback effects.
This is still a big deficit, and coming a day after Janet Yellen warned that the US debt situation was unsustainable, it seems more prescient than ever to focus on spending cuts.
There is some other good news (if you buy it). By the end of the coming decade, debt held by the public would total 80 percent of GDP: 11 percentage points below the debt-to-GDP ratio projected in CBO's baseline.
But as CBO notes, this is due to the adminstration's hopeful growth estimates...
"The deficits that CBO estimates would occur under the President’s proposals are larger than those estimated by the Administration. Nearly all of that difference arises because the Administration projects higher revenue collections—stemming mainly from a projection of faster economic growth"
The deficit reduction under the President’s proposals would stem from lower spending.
The 10-year decrease of $4.2 trillion (or 8 percent) from amounts in CBO’s baseline would result from the following changes:
A decrease of $2.0 trillion in mandatory spending (which is spending for programs generally governed by provisions of permanent law), including a $1.9 trillion reduction in spending for health care, as well as cuts to income security programs and student loans;
A decrease of $1.9 trillion in discretionary outlays (which result from funding provided or controlled by annual appropriation acts) stemming from substantial reductions in nondefense discretionary spending and from sharply lower outlays for military operations and related activities in Afghanistan and elsewhere (known as overseas contingency operations, or OCO); and
A decrease of $0.3 trillion in net interest costs because of lower deficits.
Outlays would average 20.7 percent of GDP from 2018 to 2027 under the President’s proposals. In CBO’s baseline, by contrast, outlays average 22.4 percent of GDP during that period. (Over the past 50 years, they have averaged 20.3 percent of GDP.)
And finally regarding tax reform and deficit-neutral discussions:
The budget also contains a proposal for deficit-neutral tax reform.
That proposal lacked the specificity necessary to evaluate any effects from such a change.
For that reason, CBO and JCT used as a placeholder the Administration’s estimate that the proposal would have no net budgetary effect.
Full CBO Report below...