President Barack Obama’s budget is relying on a series of familiar accounting tricks to show $1.8 trillion in deficit reduction over a decade, an amount that would shrink by almost half if they were excluded.
But so-called “pay-go” rules officially require tax cuts and new spending on the mandatory side of the ledger to be balanced by new revenues or spending cuts elsewhere. Mandatory spending, like fees that Medicare pays to doctors, runs on autopilot.
The accounting steps essentially inflate the White House’s “baseline” predictions of future deficits. Then the White House claims greater deficit savings than it otherwise could if it played by the budget rules followed by the Congressional Budget Office, whose estimates lawmakers have to follow.
That’s according to a study by the budget sleuths at a Washington think called the Committee For a Responsible Federal Budget, a business-funded group that advocates cutting deficits.
MANDATORY AUTOMATIC CUTS
In the budget table summarizing the $1.8 trillion in deficit cuts, there’s a line that adds back funds to replace the automatic, across-the-board cuts to a variety of mandatory programs, including a 2 percentage point cut in payments to doctors who treat Medicare patients.
That’s a major assumption on Obama’s part about the fate of the automatic cuts, part of the deal he struck with Congress in August 2011.
Cost: $185 billion over 10 years.
There’s a proposal to permanently fix a flawed Medicare formula that threatens doctors with an even bigger 21 percent fee cut. Lawmakers typically “patch” the formula for a year or two but hope for a long-term solution this year.
Cost: $108 billion.
REFUNDABLE TAX CREDITS
A set of refundable tax credits — tax refunds that go out to low-income people who don’t owe federal income tax — expire in 2017. So does a maximum $2,500 tax credit for the cost of college. Obama’s budget simply assumes they get extended.
Cost: $166 billion.
INFLATED SPENDING BASELINE
This one’s tricky and requires background. Under budget rules, official scorekeepers at the Congressional Budget Office are supposed to set an arbitrary baseline for annual agency budgets passed by Congress each year that rises each year with inflation at a relatively generous pace.
The 2011 Budget Control Act slashed this spending increase by $900 billion by setting spending “caps” well below this baseline. Well, the caps are lifted after 2021, but Obama’s 10-year budget covers four more years. The White House assumes the baseline would jump to inflated levels that pretend the 2011 law never happened. Then it claims huge savings when cutting them back in 2022-25 to more realistic levels.
Questionable savings: about $310 billion.
Additional debt would have to be issued to cover the above policies, and interest costs on that debt are considerable. Cost: about $105 billion
GRAND TOTAL: $874 BILLION
In summary, Obama’s budget claims $1.809 trillion in deficit savings. Take away $874 billion accruing from accounting tricks and there’s about $935 billion left.
Here’s how Edward Lorenzen, a top analyst for the Committee For a Responsible Federal Budget puts it: “The budget significantly overstates the amount of deficit reduction that would be achieved by using a baseline which effectively ignores the costs of extending or repealing certain policies and assuming a large increase in spending in the future to claim savings from extending spending limits after 2021.”
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