Saturday, March 23, 2013

A Budget Comparison

Now that the House and Senate have passed their respective budgets, I thought it might be useful to do a comparison, at a high level, between the budgets.  The chart below provides a very simple way of looking at the budgets in aggregate, a level that is appropriate, given how unspecific budget resolutions tend to be.

Let's start with the spending side of the equation.  The CBO baseline has spending growth at 5.3% per year from 2013 to 2023.  The Ryan budget is at 3.4% per year and the Murray budget is at 4.8% per year.  All of these are higher than the projected rate of growth of inflation plus population.  Thus, real government spending per capita will increase under each of these budgets.  For example, under the Murray budget, real spending per capita grows from $11,229 in 2013 to $13, 697 in 2023.  In other words, even after accounting for the growth of inflation and population, the Murray budget spends about 20 percent more per person by the end of the 10 year period.

On the revenue side, the budgets are all pretty close.  The Murray budget increases taxes more than the Ryan budget (which basically duplicates the CBO baseline).  But again, all budgets grow spending far faster than GDP, meaning government revenues will expand faster than the growth of the economy.

What is interesting from my perspective is the 2.1 percentage point gap between GDP growth and forecast inflation plus population growth.  As I have discussed before, that gap is our budget opportunity.  A budget that grows spending at the rate of inflation plus population, while growing revenue at the rate of growth of GDP will always balance.  For example, starting from our forecast position in 2013, a budget designed along these lines would balance within 15 years, not quite as fast as the Ryan budget but a lot faster than anything else that has been proposed.

1 comment:

  1. In short, both budgets are fiction, but the Democrat budget is a complete fairy tale.