The White House is marketing the President’s new deficit reduction proposals as “A Balanced Approach.”
THE PRESIDENT: Now, I’m proposing real, serious cuts in spending. When you include the $1 trillion in cuts I’ve already signed into law, these would be among the biggest cuts in spending in our history. But they’ve got to be part of a larger plan that’s balanced –- a plan that asks the most fortunate among us to pay their fair share, just like everybody else.
The President argues that “balance” between spending cuts and tax increases is good. He further argues that he achieves this desired balance by both cutting spending and raising taxes. I think balance between spending cuts and tax increases is a negotiating concept rather than an objective measure of equity. It defines fair as “each of the negotiating parties has to accept things they don’t like.” That’s a relativist concept based on how one defines what one likes or will accept. Further, the President’s definition of “shared sacrifice” exempts the largest entitlement spending program (Social Security), his biggest legislative achievement (the new health entitlement created two years ago), and tax increases for more than 99% of the population. That is an odd definition of “shared.”
Many others, however, accept the concept of balance between spending cuts and tax increases, and are willing to overlook the above problems. For the moment let’s set aside my problems with spending/tax balance and examine whether the President’s new proposals are balanced between spending cuts and tax increases.
Thanks to the help of a budget expert friend, I’m going to strip out the optical gimmicks from the President’s proposal and show you the new fiscal policy changes he is actually proposing. All numbers below are 10-year totals (in billions of $) from OMB’s new document released today. I put spending “cuts” in quotes because they’re really reductions in the rate of spending growth.
|($B 10 yrs)|
|Mandatory spending “cuts”|
|Medicare & Medicaid savings||-320|
|Subtotal, mandatory spending “cuts”||-577|
|Jobs bill spending increases||+193|
|Medicare “doc fix” (hidden)||+298|
|Subtotal, spending increases||+491|
|Net change in spending||-86|
|Jobs bill tax cuts||-254|
|Net tax increases||+1280|
|Net deficit effect, spending||-86|
|Net deficit effect, taxes||-1280|
|Net deficit effect, all policies||-1366|
This table differs from the Administration’s presentation in the following ways:
- It does not count (again) deficit reduction resulting from discretionary spending cuts enacted six weeks ago in the Budget Control Act.
- It does not count (again) deficit reduction resulting from the drawdown in Iraq and the anticipated drawdown in Afghanistan, policies which were announced many months ago and do not represent new policy changes.
- It includes $298 B of proposed Medicare spending increases for doctors (the so-called “doc fix”) that the Administration conveniently buries in the baseline. They did the same thing with ObamaCare, enacting that spending increase separately so they could claim the base bills reduced the deficit. This spending will occur, we just don’t know in what legislative context it will be enacted.
- It focuses on policy changes, and therefore excludes the interest savings the Administration is using to bump up their totals. This interest savings would occur, but budget presentations traditionally leave that out and focus only on the direct savings from proposed policy changes.
Based on this presentation, I draw the following conclusions about the President’s new proposal:
- The President is not, as he claims “proposing real, serious cuts in spending.” His proposals would result in a tiny net reduction in spending: -$86 B over 10 years. Almost all of the spending cuts for which he wants to claim credit have already been enacted or accounted for. Almost all the new spending cuts he proposes would be used to offset higher spending in his Jobs bill proposal and for more Medicare spending on doctors.
- The President is proposing about $1.5 T in higher taxes over ten years, offset by about $250 B of tax relief, for a net tax increase of almost $1.3 T.
- Almost all of the President’s new proposed deficit reduction comes from tax increases.
Simplifying even further, there is a perverse hidden logic to the President’s proposal. It goes like this: “We cut spending in the spring and summer, so we’re going to propose almost all tax increases this time. That’s balanced.” If you reread the Presidential quote up top, you can see the rhetorical trick revealed:
THE PRESIDENT: … When you include the $1 trillion in cuts I’ve already signed into law, these would be among the biggest cuts in spending in our history. But they’ve got to be part of a larger plan that’s balanced …
You could be forgiven for thinking that the President is claiming that his new proposals are balanced, and that “the larger plan that’s balanced” is what he has proposed this month, consisting of equal-sized spending cuts and tax increases. That is the incorrect conclusion to which you are led, but technically the President is not claiming that. The “larger plan that’s balanced” is one that includes spending cuts enacted over the past six months. The “among the biggest cuts in spending in our history” are not those newly proposed, but those previously enacted.
They are playing a word game to fool you, and if you listen carefully you’ll hear it repeated over the next few weeks. Team Obama knows they’d never win the public debate if they admitted that the President is now proposing massive tax increases to “balance” previously enacted spending cuts, so they’re engaging in a little misdirection.
(photo credit: Steven Depolo)