Revised October 20, 2000

The Cost of the Bush and Gore Budget Proposals
by James Horney and Robert Greenstein

View PDF version

If you cannot access the file through the link, right-click on the underlined text, click "Save Link As," download to your directory, and open the document in Adobe Acrobat Reader.

Both major-party presidential candidates have issued budget proposals. As their budgets make clear, Governor Bush proposes larger tax cuts than Vice President Gore, while Gore proposes a higher level of program expenditures than Bush. There has been significant confusion, however, about the cost of their plans. This analysis examines that issue.

The Costs of the Candidates' Plans Relative to CBO's Projection of the Surplus

In July 2000, the Congressional Budget Office projected that the non-Social Security part of the budget would run surpluses totaling $2.2 trillion over the next 10 years.(1) These projections generally assume there will be no change in the laws governing taxes and entitlement programs and that discretionary appropriations will remain at the fiscal year 2000 level, adjusted for inflation.(2) Both the Bush campaign and the Gore campaign have issued documents that use this CBO "baseline" as the starting point for measuring the cost of their budget plans.

Based on these documents, the Gore budget would cost $1.4 trillion over 10 years. The Bush budget would cost $1.9 trillion. These are the same figures as are reflected in an issue brief the Concord Coalition issued last week.  (These amounts, and other estimates in this analysis, deal with the non-Social Security part of the budget. They exclude the effects of the Bush proposal to establish private accounts as part of a Social Security reform effort and the Gore proposal for increases in Social Security benefits for elderly women.)

The Bush Proposals

According to a document the Bush campaign released on September 5, 2000 ("Bush Offers Prescription Drug Coverage; Gore Continues to Distort Budget Numbers"), Governor Bush has proposed the following:

Budget Proposals Relative to CBO's Surplus Projection
(Fiscal years 2001-2010, in billions of dollars)




CBO non-Social Security surplus 2,173 2,173
Effect on the surplus of proposals:
Taxes -1,317 -279
Retirement savings na -200
Medicare (including prescription drugs) -198 -353
Other health care (including tax credits) -100 -98
Other (including offsets) -8 70
Discretionary spending increases -169 -367
Discretionary savings from government reform 196 30
Subtotal, policy changes -1,595 -1,197
Increased interest costs -313 - 213
Total reduction in the surplus -1,908 -1,410
Non Social Security surplus remaining 265 763
na = not applicable

As a result of the smaller surpluses and lesser amount of debt reduction that would stem from these policy proposals, federal interest payments on the debt would be approximately $313 billion higher than CBO's surplus projection assumes.(3) The total cost of the Bush budget plan thus would be $1.908 trillion over the next 10 years. (See table above.)

The Gore Budget Proposals

In September, the Gore campaign released a document entitled "Prosperity for America's Families: the Gore-Lieberman Economic Plan." Based on this document, Vice President Gore has proposed:

As a result of the smaller surpluses and lower amount of debt reduction that would stem from these policy changes, federal interest payments would be about $213 billion higher over the next 10 years than the amount reflected in CBO's surplus projection. The total cost of the Gore proposals thus would be about $1.41 trillion over 10 years. The Gore budget also proposes to transfer funds to the Medicare Hospital Insurance trust fund and to a "rainy day reserve" fund. Such transfers do not constitute net budget expenditures and are not treated as such by CBO, OMB, or independent fiscal analysts, because the amounts transferred would be used to pay down debt rather than spent.

How the Estimates in this Analysis Compare to Those in Analyses Issued by
the Concord Coalition and the Senate Budget Committee Majority Staff

The estimates in this analysis — that the Bush and Gore plans would cost $1.9 trillion and $1.4 trillion, respectively, over the next 10 years — are essentially identical to those in an analysis the Concord Coalition issued October 11. (The CBPP and Concord analyses each note that these estimates reflect ambitious savings that the Bush budget assumes can be achieved in discretionary spending and that the Gore budget proposes in certain mandatory programs and taxes. The Bush and Gore budgets would each cost several hundred billion dollars more if these savings cannot be achieved.)

The Senate Budget Committee Republican staff has issued an analysis of the cost of the Gore budget that greatly exceeds the CBPP and Concord estimates. The principle presentation in the Budget Committee documents describes the Gore non-Social Security proposals as totaling $3.4 trillion to $4.3 trillion over the next 10 years, of which $2.6 trillion to $3.4 trillion constitutes new spending.

The Budget Committee analysis is marred by several serious flaws, however, which inflate the cost estimate assigned to the Gore plan. The Budget Committee majority staff has not issued an analysis of the cost of the Bush plan.

  • The Budget Committee counts, as a cost of the Gore plan, $1.2 trillion in discretionary spending (and related interest costs) that simply reflect costs of maintaining current policy and are normally considered part of the budget "baseline." The Budget Committee's principal presentation of the cost of the Gore plan employs the assumption that all discretionary spending will be frozen for 10 years, with no adjustment even for inflation. It then classifies the cost of keeping discretionary spending even with inflation, rather than freezing it, as a $1.2 trillion Gore spending increase. This is not consistent with normal practice. The standard budget baseline used for most of the past quarter-century — and the one that both the Bush and Gore campaigns use — reflects the cost of adjusting the current level of discretionary spending for inflation as part of the cost of maintaining current policy. (Freezing funding for discretionary programs for 10 years, as opposed to keeping such funding even with inflation, does not maintain current policy because it requires reductions in the level of services provided.)

    It should be noted that under the approach the Budget Committee document uses, the $1.2 trillion in new spending costs would have to be applied to the Bush budget as well if a parallel cost estimate on that budget were prepared. Furthermore, this approach assumes that the non-Social Security surplus totals $3.35 trillion over the next 10 years and that the total surplus (including Social Security) equals $5.7 trillion, figures far above those that virtually all analysts use and that the Bush and Gore campaigns use when presenting their own budgets.
  • The Budget Committee also counts, as a cost of the Gore plan, $459 billion that the Gore budget would place off limits for spending or tax plans and would devote to paying down debt. The $459 billion are the funds the Gore budget would place in a Medicare "lockbox." Under longstanding CBO and OMB rules — with which virtually all fiscal analysts and economists concur — none of this $459 billion constitutes net government spending, as is evidenced by the fact that all of these funds would be used to pay down debt, something that cannot be done with resources that are expended. Although in some places, the Senate Budget Committee document does not count this $459 billion as "spending," it includes the $459 billion as part of the Gore plan's total cost and uses this $459 billion in claiming that the Gore budget "overspends" the non-Social Security surplus.
  • The Budget Committee document shows a cost of up to $750 billion for the Gore retirement saving account proposal. The Gore budget, however, proposes to spend $200 billion on this proposal. (The Budget Committee shows a cost range of $200 billion to $750 billion for this proposal. Attacks on the Gore budget have tended to used the $750 billion figure in the Budget Committee document.) The Budget Committee's treatment of this issue is problematic. In generating the $750 billion cost estimate, the Budget Committee document takes the 10th year cost of the proposal and multiplies it by 10. This inflates the proposal's cost over the next 10 years because under the Gore budget, the proposal would be phased in over this 10-year period. If the same approach — of taking the tenth year cost and multiplying it by 10 — were applied, for example, to Governor Bush's tax cut, using the Bush campaign's own figures on the tax cut's year-by-year cost, the tax cut would be said to cost $2.3 trillion over 10 years rather than $1.3 trillion. In addition, the participation rate the Budget Committee document uses (in generating the $750 billion figure) for the proportion of low-income workers assumed to contribute to these retirement savings accounts is significantly higher than the participation rate by such workers in employer-sponsored pension plans that provide matching contributions.


These Estimates May Understate the Plans' Costs

These estimates of the plans' costs by each campaign are likely to understate the costs to some extent. This is true for several reasons.

The Estimates in this Analysis

The estimates in this analysis are based on the two campaigns' estimates of the cost of their tax and spending proposals, as identified in their campaign documents. In this analysis we do not accept claims by a campaign that are designed to raise the cost of the opposing candidate's budget. For example, we do not adopt a claim the Gore campaign has made that the Bush tax cut is larger than the Bush campaign says because Governor Bush has indicated he would sign certain tax cuts that Congress approved this year but that are not in the Bush tax plan. Similarly, we do not adopt the Bush campaign claim that the Gore retirement savings account proposal would cost more than the $200 billion the Gore campaign assumes.a
a Attempts to re-estimate upward the assumed cost of Gore's retirement savings account proposal have assumed a much-faster phase-in of these accounts than the Gore plan proposes, as well as high "take-up" rates by low-income workers that exceed the rates of participation by such workers in employer-sponsored pension plans that provide matching contributions.

For these reasons, the figures that emerge from the cost estimates that the candidates have produced for their own plans are likely to be underestimates. The underestimates are likely to be somewhat larger for the Bush plan because of the combined effect of the AMT and the assumption that discretionary spending can be lowered $320 billion below the fiscal year 2000 level in real per-capita terms.

End Notes:

1. See Congressional Budget Office, The Budget and Economic Outlook: An Update, July 2000. CBO also projected that surpluses in the Social Security trust funds would total $2.4 trillion over the 2001-2010 period.

2. Discretionary, or annually appropriated, spending represents about one-third of total federal spending and funds a wide array of government activities such as defense, education, health and science research, veterans medical care, environmental programs, highway construction, Head Start, the Federal Bureau of Investigation, and the National Park Service.

3. The CBO projection assumes that virtually all of the projected surplus will be used to pay down debt. As a result, any tax cut or spending increase will result in less debt reduction than CBO assumed — and thus in a higher level of debt. With a higher level of debt, the cost of the interest payments made on the debt would be greater than the cost assumed in the CBO surplus projection.

4. The Gore campaign document shows $90 billion in net savings for this category of proposals rather than $70 billion, but that includes $20 billion in net discretionary savings. These savings in discretionary spending are included in the discretionary spending totals in this analysis.

5. Both campaigns propose small changes to current AMT law to prevent the AMT from limiting the use of one or a few specific tax credits. For instance, the Bush plan proposes that a taxpayer's ability to claim the child tax credit should not be limited by the AMT, and the Gore plan assumes that the proposed Retirement Savings Plan credit will not be eliminated by the AMT.

6. The cost estimates of both campaigns do take into account the cost of their proposals to limit the effect of the AMT on a few specified tax credits, but those proposals do not prevent the AMT from affecting increasingly large numbers of middle-class taxpayers and reducing the benefits of other tax cuts that the candidates propose.

7. To keep pace with both inflation and population growth, discretionary spending would need to rise about one percent more than the inflation rate; discretionary appropriations for fiscal year 2001 are likely to surpass the fiscal year 2000 level by inflation plus four percent.

8. See David Rogers, "Congress May Overshoot the GOP Target for Spending by as Much as $45 Billion," Wall Street Journal, October 2, 2000. The title of the article refers to appropriations in excess of the level set by Congressional Republicans in the budget resolution adopted earlier this year, which already assumed appropriations almost $60 billion in excess of the limit for 2001 established in 1997 and still in law.