Suppose I bought an iPhone yesterday for $500.

Suppose I argue that I will save $2000 this week, because I intend to refraining from buying an additional iPhone today, nor will I buy one this Wednesday, Thursday, or Friday.

Suppose I plan to buy a new flat screen TV tomorrow for $1500.

Can I claim I that have paid for my TV by cutting other spending, and that in addition I will be saving $500 this week?

This is what the Administration has done with war costs in their budget.

There is no debate about how much I will spend this week: $500 for the iPhone, plus $1500 for the TV, equals $2000 of total spending.

The question is instead whether I have increased or decreased my spending compared to what it otherwise would have been.

In this example, I argued that I will cut my total projected spending by $500, and I am also paying for the TV by cutting spending.

You argue that it is absurd to assume that I would buy an iPhone each day this week. The right baseline, you argue, is to treat the iPhone purchase as a one-time expenditure, and to use a spending baseline of zero for the remainder of this week. Thus the $1500 TV purchase is a spending increase, not a spending cut.

The argument about whether the President’s budget increases or cuts the deficit is therefore a debate about the baseline – what would happen otherwise?

Rep. Paul Ryan (R-WI) did a good analysis of the war spending assumption in the President’s budget. He and his staff conclude that the President’s budget includes $1.5 trillion of phony savings (over 10 years) by inflating the war spending baseline the way I did with my mythical cancelled iPhone purchases. The President’s budget makes a similar $330 B assumption for Medicare payments to doctors.

Even more intriguing, the President’s budget (table S-5 in this document) argues that the $9 trillion of incremental baseline debt they argue they “inherited” should include $835 B of additional debt resulting from two laws President Obama signed: the stimulus law, and the omnibus appropriations law. Clearly that $835 B of additional debt was not inherited, and should be netted out against their claimed future deficit reduction.

Here is the math behind the Administration’s claim of fiscal responsibility, and CBO’s countervailing analysis. All figures are for the next ten years (2010-2019):