Testifying before Congress yesterday, the acting OMB director Jeffrey Zients explained how the $3.8 trillion budget the president sent to Congress on Monday is a good example of what can be achieved with a balanced approach. According to Zients, the budget offers $2.50 in spending cuts for every dollar in increased revenue.
In doing so, he was just repeating the narrative offered Sunday on Meet the Press by White House chief of staff and former budget director Jack Lew:
We’ve seen from Republicans in–particularly Republicans in the House, but with Republicans generally, that they don’t want to be part of any plan that raises taxes at all. The president’s budget has $1 of revenue for every $2 1/2 of spending cuts. This can be done, but it can only be done when we work together.
This is particularly misleading. A look at the budget summary tables (Table S-3 in particular) shows that:
The president counts as savings in FY2013 budget “cuts” that were the result of budget caps imposed through the debt-ceiling deal back in August 2011.
The biggest spending cuts come from phantom savings due to the withdrawal of the troops in the Middle East.
Reductions in interest payments are counted as spending cuts.
Now let’s even assume that the president and his team were actually proposing a $2.50 for $1 deal. Even in that case, taxpayers ought to be warned. Experiences from the past demonstrate that, inevitably, the balanced approach leads to more taxes and more spending.
Republicans have gone down that path before. Remember President Reagan’s deal with Congress in 1982? Steven Hayward gives a good account of the $1 in revenue for $3 in spending cuts deal the president made with congressional Democrats. According to the data, the deal might have resulted in $1.14 of new spending for each extra tax dollar.
President Bush made the same mistake in the early 1990s. He made a deal to increase taxes by $1 in exchange for $2 in spending cuts; again, the tax increases were real, but spending wasn’t cut. In fact, it went up.
Now, I know that the balanced approach appeals to our sense of fairness and moderation. But it’s not fair and balanced if the actual deal doesn’t deliver on the spending cuts. Unfortunately, experience also shows that taxpayers have very little ability (if any) to force Congress to stop spending. In fact, more often than not, even writing rules to tie their hand won’t stop them.
There is hope, however, as a few countries that have successfully reduced their debt-to-GDP ratio in the past. Here is how they have done it.
Update: Here is a good chart that shows the actual proposed cuts vs. Gimmick cuts: