The Corner

Dealing with the Budget Numbers

According to the Congressional Budget Office, we now have a deal to reduce the deficit by at least $2.1 trillion over 10 years, with a down payment of $917 billion in spending cuts and at least $1.2 trillion in additional deficit reduction through fiscal year 2021. Whether this deal is adjudged good or bad depends in some measure on how citizens interpret the unfathomably large numbers the press uses to characterize the deal.

For decades, there has been a substantial disconnect between the way political leaders and the press characterize spending cuts, on one hand, and the way this same information registers in the minds of most citizens, on the other. The former group starts with a baseline of what future spending is expected to be, adjusted for inflation and including all the increases that are already embedded in law. So, for example, if spending next year (fiscal year 2012) is $3.639 trillion, as expected, they will adjust this number for inflation, demographics, new spending already on the books, and other technical factors to come up with a baseline for fiscal year 2013 of $3.779 trillion. Thus, any policy change that reduces actual spending in 2013 below $3.779 trillion is called a cut, even if common sense tells you it’s an increase. Since the new budget law adjusts spending in 2013 to $3.682 trillion (assuming the unspecified $1.2 trillion in deficit reduction is all in spending cuts and is distrbuted over the years in a manner identical to the $917 billion already specified), it is being reported as a cut of $97 billion, whereas most people would call this an increase of $43 billion.

Thanks to the Tea Party and others, this “spending-cut flim-flam” is coming out in the open. A recent Rasmussen poll (August 10) finds that 62 percent of voters now understand that what is reported as a spending cut is really a reduction in the rate of increase. The poll also indicates that those who understand this are much more likely to demand real cuts in spending.

The nearby graph, based on the most recent CBO analysis, shows actual and projected federal spending for fiscal years 2006 through 2021, with and without the budget deal. Three things are worth noting. First, it is clear that the alleged spending cuts in the current deal are really reductions in the rate of increase, not reductions in total spending.

Second, the alleged cuts are from an inflated base. That is, note the run-up in total spending from 2008 to 2011. Compared with a more normal figure of some $2.7 trillion in 2007, spending this fiscal year is $900 billion higher. Thus, a simple way of seeming to cut spending without really doing so is to start from the perch of a spending balloon.

Third, the history of budget analysis is replete with evidence that you can place some degree of confidence in projections for the coming year, and a little confidence in projections for the following year or so, but hardly any confidence in anything after that. So to the extent that spending cuts are concentrated in the “out years,” one should have very little confidence that they will actually take place. As the graph shows, the alleged spending cuts are mostly in the out years. Assuming that the deficit reductions incorporated in the new joint committee’s proposals are distributed over the years in the same proportions as the $917 billion in spending “cuts” already agreed to, fully 86 percent of the $2.1 trillion in deficit reduction will come after year three of the deal — that is, after 2014.

Most Americans agree that their government should tell them the truth and that journalists should report the facts accurately. Although some in the chattering class might demur, most Americans would also agree that appropriate policy is more likely to emerge from an informed public than from one which is not. Accordingly, it is incumbent on government officials and journalists to make sure that what they communicate to the public is truthful and factual.

— James Carter was deputy assistant secretary of the Treasury under Pres. George W. Bush and served on the staff of the Senate Budget Committee. James C. Miller III served as President Reagan’s budget director from 1985 to 1988 and is now a senior adviser at Husch Blackwell, LLP.

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