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Obama’s Deficit Plan is All Tax Hikes, No Cuts



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Today President Obama’s released a deficit-reduction proposal that was actually written down on paper, the first time he has done so since introducing his laughable 2012 budget back in February (the Senate voted it down 97 to 0). The White House claims that the president’s plan represents a “balanced approach” that, relative to its current policy baseline, will increase the federal deficit initially by $300 billion in fiscal year 2012 (to pay for his “jobs plan“), but will reduce deficits by $3.2 trillion over the next decade. The claim is outrageously misleading. In fact, when you strip away the budgetary gimmicks, Obama’s plan achieves less than half the overall deficit reduction he is claiming, and is as wildly unbalanced as his February budget proposal.

In order to come up with that $3.2 trillion figure, the White House employs the following gimmicks to achieve a phony $1.8 trillion in deficit reduction that should not be counted as such: (1) claiming the inevitable reduction in spending — about $1.1 trillion — on the Iraq and Afghanistan wars as “savings,” (2) including in its baseline $293 billion in funding for the Medicare “Doc Fix” to restore Medicare payments to physicians, spending that does not reflect current law and ought to be offset, (3) counting as “savings” the subsequent reduction in interest payments on the debt, which does not constitute a “policy” and should not be scored as one.

When that $1.8 billion is removed from the equation, the true nature of the president’s “deficit-reduction” “plan” is laid bare: $1.4 trillion in net deficit reduction consisting of $150 billion in spending increases combined with $1.6 trillion in tax increases. Consider the following figures compiled by Republican staff at the Senate Budget Committee:

Fiscal Policy in President Obama’s September 2011 Budget Plan
                 (Fiscal Years 2012-2021, in Billions of Dollars)                               

Spending:1               
Stimulus (American Jobs Act)2    430           
Medicare “Doc Fix” (Payment Freeze):    293           
Other Medicare Changes:    -248           
Medicaid and Other Health:    -73           
Other Mandatory Policy Changes:    -257           
Net Spending Changes:    146                        

Taxes:3               
Stimulus (American Jobs Act):    -17           
Tax “Reform”:    1,573           
Net Tax Changes:    1,555                        
Net Policy Changes:4    -1,409                        

Tax Increases as Share Net Deficit Reduction:    110%

1–Spending increases are shown as positive (+) and spending decreases are shown as negative (-).
2–Includes payroll tax reductions as spending because it is expected that the trust funds will receive general fund transfers to avoid any reduction in trust fund balances.
3–Tax increases are shown as positive (+) and tax decreases are shown as negative (-).
4–Deficit increases are shown as positive (+) and deficit decreases are shown as negative (-).

So, because of the additional spending Obama has proposed as part of his “jobs plan,” tax increases actually account for more than 100 percent of the deficit-reduction he can accurately claim. In his speech at the White House this morning, the president said his plan “cuts $2 for every dollar in new revenues.” In reality, it reduces the deficit by cutting $0, spending $1 and raising taxes by $11.

Despite this massive tax increase, however, the president’s plan still fails to get deficits under control. Annuals deficits decline to $476 billion in 2014, but rise to $565 billion in 2021. Over the ten-year budget window, the plan adds to the deficit by a total of $6.4 trillion by 2021, and gross federal debt reaches nearly $25 trillion, more than 100 percent of the national GDP.

Now a little more about those gimmicks:

War “savings” — Obama’s plan manipulates the budget baseline in a way that frames the decline in total spending on the wars in Iraq and Afghanistan as a policy decision, when in fact the money being “saved” would never have been spent in the first place as the war effort in those countries winds down. The administration and its Democratic allies attempted to pull this trick during the debt-ceiling debate, but ultimately these “savings” were not included in the Budget Control Act. Democrats rebut this charge by asserting that House Budget Committee chairman Paul Ryan (R., Wis.) did the same things in his 2012 budget resolution. Only that’s not true.

“Doc fix” funding — This is not accounted for under current law, but Congress routinely approves the funding anyway. Obama simply included it in his baseline as a given (to the tune of $293 billion over ten years) as opposed to a policy choice that would add to the deficit unless otherwise offset. Without this neat trick, the $320 in health-care “savings” claimed in the president’s plan are reduced to a mere $27 billion. But that’s not the only gimmick as far as health-care spending is concerned, as Yuval Levin explains:

To get around the fact that the few and minor Medicare “reforms” he proposes are unlikely to achieve the savings he counts on, Obama proposes a “backstop” to those reforms, involving a further tightening of the mandate of the IPAB (the Medicare cost board created by Obamacare). He gives the board the power to impose an automatic sequester (essentially an immense new price-control authority) in case the rest of his savings do not materialize. This would never actually happen, of course, it would be immensely unpopular. But having such a backstop in the document (without highlighting it) makes it possible to “score” this plan as achieving the cuts it proposes even if the mechanisms it proposes for doing so are very unlikely to work—a familiar budget trick, aimed at avoiding the embarrassment Obama suffered this winter when CBO scored his budget a failure.

Indeed, the president’s got a fever, and the only prescription is more IPAB.

All told, the president’s latest contribution to the national conversation on debt and deficits is no more serious than his previous one. As I wrote earlier, at the very least, voters are starting to getting a clear sense of the kinds of policies that Obama would try to enact if reelected. And while his agenda may be frightening enough on its surface, it is all the more so once you cut through all the smoke and mirrors.



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