CBO's Estimates of the Budgetary Effects of the Revised Deficit Reduction Plans

July 29, 2011

In a blog post on Wednesday, I discussed CBO’s analysis of plans to reduce future budget deficits put forward by House Speaker John Boehner and Senate Majority Leader Harry Reid as part of proposals to raise the limit on the national debt. In the past couple of days, both the Speaker and Majority Leader have proposed revised versions of those plans. CBO’s estimates of the revised versions are described in these letters: 

Senate Majority Leader Reid’s Plan, Proposed on July 29 

House Speaker Boehner’s Plan, Proposed on July 27

CBO has not prepared an updated cost estimate for Speaker Boehner’s plan that was passed by the House earlier today, as the changes made to the legislation—related to a balanced budget amendment to the Constitution—would have no effect on our estimate. 

Budgetary Effects In Brief

Below is a table comparing CBO’s estimates of the budgetary effects of the most recent versions of the two plans. These estimates are measured relative to CBO’s March 2011 baseline projections adjusted for subsequent appropriation action. (In CBO’s baseline, appropriations for discretionary programs are assumed to grow each year with inflation from the amounts provided for the most recent year. CBO adjusted its March baseline projections to incorporate reductions in projected spending resulting from enactment of full-year appropriations for the current fiscal year [P.L. 112-10], which occurred after that baseline had been prepared.) 

For each version of the legislation, nearly all of the estimated savings would result from imposing caps on discretionary appropriations and the resulting effect on debt service payments. The caps differ primarily on whether funding related to the wars in Afghanistan and Iraq and similar activities (sometimes referred to as overseas contingency operations or OCO) would be subject to a cap. CBO was asked to compare the estimated cumulative budgetary savings for the plans with and without the estimated savings that are attributable to proposed caps on OCO. The table above provides that comparison. 

Changes from CBO’s Earlier Estimates

Speaker Boehner’s Plan: CBO estimates that the latest version of the legislation would reduce budget deficits by $917 billion between 2012 and 2021, a reduction that is $66 billion greater than that estimated for the earlier version. The caps on discretionary appropriations would reduce such spending by $756 billion, other parts of the legislation would lower spending by $6 billion, and the savings in interest on the public debt because of the lower deficits would come to $156 billion. 

Relative to our earlier estimate, CBO assumed additional savings as a result of removing the caps on discretionary outlays for fiscal years 2012 and 2013. 

Majority Leader Reid’s Plan:  CBO estimates that the legislation would reduce budget deficits by about $2.2 trillion between 2012 and 2021 relative to CBO’s March 2011 baseline adjusted for subsequent appropriation action. (That reduction is $18 billion greater than what CBO estimated for the earlier version of the proposal.) The caps on discretionary appropriations would reduce such spending by nearly $1.8 trillion, other parts of the legislation would reduce deficits by $22 billion, and the savings in interest on the public debt because of the lower deficits would come to $376 billion. 

Changes made to the details of a “program integrity” initiative to increase compliance with tax laws—partly offset by the removal of provisions related to the auction of licenses for use of parts of the electromagnetic spectrum—boosted the deficit reduction relative to our earlier estimate. 

Estimates Relative to the January Baseline

As requested by the House and Senate leadership, CBO also calculated the net budgetary impact of the plans if the discretionary savings are measured relative to CBO’s January baseline projections, which were the basis for some of the budget negotiations and which reflected discretionary funding levels that were largely a temporary extension of the 2010 appropriations (because the full-year 2011 appropriations had not yet been enacted). 

Speaker Boehner’s Plan: Relative to the January baseline, CBO estimates that the legislation would reduce budget deficits by about $1.1 trillion between 2012 and 2021. Savings from the discretionary caps would amount to about $935 billion, other parts of the plan would reduce spending by $6 billion, and the savings in interest on the public debt because of the lower deficits would come to $196 billion. 

Majority Leader Reid’s Plan: CBO estimates that the legislation would reduce budget deficits by about $2.4 trillion between 2012 and 2021. The caps on discretionary appropriations would reduce such spending by about $1.980 trillion, other parts of the legislation would reduce deficits by $22 billion, and the savings in interest on the public debt because of the lower deficits would come to $421 billion. 

Comparing the Two Plans

CBO has been asked to compare the estimated cumulative budgetary savings for Speaker Boehner’s version of the Budget Control Act of 2011 to the savings that would be attributable to Majority Leader Reid’s version of the Budget Control Act without the estimated savings that are attributable to proposed caps on new funding for war-related activities. The above table provides that comparison. 

Speaker Boehner’s Plan: We estimated cumulative savings, including debt service, of $917 billion over the 2012–2021 period for that proposal, with discretionary savings measured relative to CBO's March 2011 baseline, adjusted to reflect enactment of 2011 appropriations. That proposal did not address future funding for war-related activities. 

Majority Leader Reid’s Plan: We estimated cumulative savings, including debt service, of $2,194 billion over the 2012–2021 period for that proposal, again with discretionary savings measured relative to CBO’s March 2011 baseline, adjusted to reflect enactment of 2011 appropriations. The cumulative savings for Majority Leader Reid’s proposal include the effects of establishing caps on new funding for war-related activities. 

Excluding the effects of the caps on funding for operations in Afghanistan and Iraq and similar activities from Majority Leader Reid’s proposal would yield 10-year savings of $927 billion, including debt-service effects, $10 billion more (over the 2012–2021 period) than estimated for Speaker Boehner’s proposal.