An Opportunity to Compare and Contrast Budgets

It is good news that we now have both House and Senate budget proposals for FY 2014 to compare and contrast. This is a first step back toward old-fashioned regular budget order which will help get the country off of management by crisis, whether by debt limits, fiscal cliffs, sequesters, or continuing resolutions. Regular order also gives us all an opportunity to participate in a more informed and open debate about where economic policy should be going. Of course the debate would be even better if the President had proposed a detailed budget before the House and Senate. We can hope that this will occur next year.

The chart below provides the key year-by-year macro facts needed to compare the House and Senate proposals. In my view this kind of chart is more useful for comparing proposals than the ten-year multi-trillion dollar totals which few people can understand. The chart shows the recent history of federal outlays along with the path of outlays as a percentage of GDP under the Senate proposal and under the House proposal. There is a clear difference of opinion about the future in these two paths. Note how spending gradually comes down to pre-crisis levels as a share of GDP under the House plan and remains high under the Senate plan. The chart also shows where revenues will be as a share of GDP under the two proposals in 2023: 19.1% for the House and 19.8% for the Senate.

So the obvious differences between the plans are that the Senate would (1) tax more than the House by .7% of GDP, (2) spend more than the House by 2.8% of GDP, and (3) run a deficit larger than the House by 2.1 percent of GDP, where the percentages are based on 2023. Thus the bigger differences are in higher spending and larger deficits. In my view the House proposal is superior on all three counts especially given the sharp increase in spending in the past few years and the steady gradual reversal in the House plan as a share of GDP.

It is anyone’s guess where the President’s budget and spending path will appear on this chart when it is submitted. In any case the debate over these two paths during the next few weeks will largely determine what the final budget agreement is.

About John B. Taylor 117 Articles

Affiliation: Stanford University

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution. He formerly served as the director of the Stanford Institute for Economic Policy Research, where he is now a senior fellow, and he was founding director of Stanford's Introductory Economics Center.

Taylor’s academic fields of expertise are macroeconomics, monetary economics, and international economics. He is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. He has an active interest in public policy. Taylor is currently a member of the California Governor's Council of Economic Advisors, where he also previously served from 1996 to 1998. In the past, he served as senior economist on the President's Council of Economic Advisers from 1976 to 1977, as a member of the President's Council of Economic Advisers from 1989 to 1991. He was also a member of the Congressional Budget Office's Panel of Economic Advisers from 1995 to 2001.

For four years from 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank. He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a member of the Board of the Overseas Private Investment Corporation. His book Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World chronicles his years as head of the international division at Treasury.

Taylor was awarded the Alexander Hamilton Award for his overall leadership in international finance at the U.S. Treasury. He was also awarded the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. In 2005, he was awarded the George P. Shultz Distinguished Public Service Award. Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford's introductory economics course. He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.

Before joining the Stanford faculty in 1984, Taylor held positions as professor of economics at Princeton University and Columbia University. Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.

Visit: John Taylor's Page, Blog

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