“Where you stand depends on where you sit,” an old, Truman-era adage says.
That idea might get a revival as the budget and tax wonk worlds debate whether the budget impact of an effort to overhaul the tax system should be looked at from standpoint of current policy (looking cheaper) or current law (more expensive).
A stroll through old Congressional Budget Office forecasts shows how the starting point matters. Compared to current law in August 2012, revenues are down by a projected $768 billion this year, spending down by $198 billion and the deficit up by $570 billion, thanks mostly to the combined effects of the 2012 “fiscal cliff” bargain and the 2015 tax extenders law.
In short, compared to five years ago, the deficit’s up because tax receipts have shrank much faster than spending has fallen.
In August 2012, about four months before the “fiscal cliff” deal that extended most of the 2001 and 2003 temporary Bush tax cuts, the CBO projected the government would have $4.083 trillion in revenues in 2017. In June, the latest CBO estimate put that at $3.315 trillion.
For spending, the CBO projected $4.206 trillion in 2012, compared to $4.008 trillion estimated in June. Now, the projected 2017 deficit is $693 billion. In 2012, the 2017 deficit was projected to be only $123 billion, or less than one-fifth the current estimate.
For fiscal 2022, the last year the various forecasts have in common, the differences are even wider. Revenues are projected to be $1.117 trillion less than projected in 2012, and spending $304 billion less, leaving the budget deficit for that year $814 billion wider than originally expected. Overall, at the end of 2022, the publicly-held Treasury debt is now set to be $4.645 trillion more than what was projected in 2012 by the CBO.
Most of those differences were due to the 2012 fiscal cliff deal, but some also came from a bipartisan agreement in 2015 to enlarge and make permanent a high number of frequently-renewed temporary tax provisions. That deal also overhauled the way Medicare pays doctors for its services. Prior to that deal, in August 2015, the CBO forecasted 2017 revenue to be $313 billion higher and spending to be $36 billion higher than it now projects.
Anti-tax proponents say the divergence was to be expected. After all, both in 2012 and in 2015, their argument was that the current tax policies then in place should be extended simply because everyone expected them to be, and that not extending them would be disruptive.
Some differences between the 2012 forecasts and the present result from other changes in law, different economic growth than forecast and technical estimation issues. But with some remaining tax extenders still in play, the current policy versus current law debate, and whether lack of revenue or too much spending is the cause of budget deficits, may be reignited.
—With assistance from Madi Alexander
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