The President’s “matching deficit reduction” claim is off by a trillion dollars (or more)

The President’s “matching deficit reduction” claim is off by a trillion dollars (or more)

In his weekly radio address the President said:

Now, one plan put forward by some Republicans in the House of Representatives aims to reduce our deficit by $4 trillion over the next ten years.

… That’s why I’ve proposed a balanced approach that matches that $4 trillion in deficit reduction.

In the radio address the President did not give a timeframe for his $4 trillion in deficit reduction. He did in his budget speech last Wednesday, however:

So today, I’m proposing a more balanced approach to achieve $4 trillion in deficit reduction over 12 years.

$4 trillion in deficit reduction over 12 years does not “match” $4 trillion in deficit reduction over 10 years. It’s not even close.

The twelve year timeframe is a red flag.  Federal budgets are measured over 1, 5, and 10 year timeframes.  Any other length “budget window” is nonstandard and suggests someone is playing games.

The President and his team have not yet provided sufficient detail for us to know precisely how his $4 trillion of deficit reduction is distributed over this 12 year window, but we can make some back-of-the-envelope guesses to get a feel for the magnitudes involved.

Based on my experience and until we get more detail from the Administration, I think it’s reasonable to assume the deficit reduction in the President’s plan increases linearly over time.  Medicare and Medicaid savings generally fit this pattern, as do gradual plans to slow the growth of defense spending.  After a jump in year 2, higher tax revenues should grow roughly with the economy.

If we assume the deficit reduction is a straight line increasing from year 1 to year 12, then $4 trillion in deficit reduction over 12 years would look like this:

Year 1 2 3 4 5 6 7 8 9 10 11 12 Total
Savings $B 51 103 154 205 256 308 359 410 462 513 564 615 4,000

 

In this scenario, $4 trillion of deficit reduction over 12 years translates into about $2.8 trillion over 10 years.  Because this scenario is linear, 29% of the savings would occur in years 11 and 12.

From the White House fact sheet, we know the timing of the President’s proposed Medicare and Medicaid savings:

the framework would save an additional $340 billion by 2021, $480 billion by 2023

This means that $140 B of his $480 B of health care savings would be in years 11 and 12, just over 29%.  While this certainly is not conclusive proof that my overall linear assumption is correct, it is a nice positive reinforcement for that guess.

It’s fairly easy to see what’s going on here.  The President decided on about $3 trillion of deficit reduction over 10 years, maybe a little less.  He wanted to claim that he was “matching” the Ryan plan in deficit reduction, but was just achieving that same goal in a better way. Matching Republican deficit reduction is a lynchpin of the President’s fiscal argument. He was short by a trillion dollars or more, so he and his team decided to measure his proposal over a different timeframe and hope no one would notice.  They lengthened the window by which they would measure the President’s deficit reduction until they matched the $4 trillion over 10 years in the Ryan plan and came up with 12 years.

Yes, these conclusions are based on my assumption of the President’s proposed deficit reduction path. We will see if anyone who challenges that assumption wants to provide their own alternate path that leads to a fundamentally different conclusion. We will also see if the Administration provides us with their actual deficit reduction path.

The President’s new budget plan provides insufficient detail to support his claim of $4 trillion of deficit reduction over 12 years. But if we stipulate that amount, it is likely that the President’s new budget proposal would result in $1 trillion more debt over the next ten years compared to the House-passed Ryan plan, and maybe more.

The President was therefore wildly incorrect when he said, referring to the House-passed Ryan budget plan, “I’ve proposed a balanced approach that matches that $4 trillion in deficit reduction.”

(photo credit: John Watson)

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