The CBO has released its analysis of Obama's 2011 budget. The CBO estimates Obama's budget will significantly raise fiscal deficits over the next 10 years. In 2011, Obama's deficit is only $140B greater than the CBO status-quo. Over the next decade, however, the difference between Obama's budget and the CBO baseline scenario is expected to reach up to $500B.
Also, it should be noted that the White House deficit estimations are significantly different than the projections of the non-partisan CBO:
The real source of Obama's higher deficit is not increased spending but more tax cuts. Obama's deficit is so much higher than that of the CBO because his proposal decreases revenues by 4% compared to the CBO's status quo baseline. The source of this revenue decline is two tax changes:
1) Indexing the AMT tax for inflation2) Extending many of Bush's tax cuts
These two items are the single most important items in Obama's budget. Over the next 10 years, their net effect is to increase the deficit by $3T! Contrary to popular opinion, the deficit has little to do with "out-of-control spending" by the Obama administration. According to the CBO, the President’s proposal to expand insurance coverage and make other changes to the health care system would lower the deficit by $0.2 trillion. Obama's discretionary spending is actually $.3T less than the status quo.
In conclusion, Obama's budget is not as extreme as it seems because the status quo is unsustainable. The CBO has unrealistic assumptions. There is no way the alternative-minimum tax could not be indexed to inflation. Otherwise, effective tax rates would be 70% by 2015 (depending on inflation)! Also, many economists and commentators (the conservative John Mauldin for example) have argued not extending Bush's tax cuts at this time would bring the economy back into recession in 2011 (perfect timing for 2012 elections).
One last comment: the CBO estimates that by 2020, US debt will hit the 90% debt-to-GDP ratio that is often seen as the point-of-no-return for highly indebted sovereigns:
"Under the President’s budget, debt held by the public would grow from
$7.5 trillion (53 percent of GDP) at the end of 2009 to $20.3 trillion (90 percent
of GDP) at the end of 2020. As a result, net interest would more than quadruple
between 2010 and 2020 in nominal dollars (without an adjustment for inflation);
it would expand from 1.4 percent of GDP in 2010 to 4.1 percent in 2020."
