Top 6 Washington Budget Gimmicks: Reading Between the Lines

July 28, 2011 -- intro:Top 6 Washington Budget Gimmicks: Reading Between the Lines

Solutions are scarce in Washington, where Republicans and Democrats continue their stalemate over raising the debt ceiling before an Aug. 2 deadline. But everyone seems to have a plan. Senate Democrats have a plan, House Republicans have a plan, the Gang of Six had a plan and President Obama and House Speaker John Boehner came close to agreeing on their own plan. But for every plan, there are underlying budgetary tricks that help make the plans appear better than they are.

Each plan unveiled in recent weeks promises spending cuts and more than a trillion dollars of cost savings. But part of the reason no one seems able to agree on which plan is the best is that they disagree even on what's inside.

House Speaker John Boehner criticized the Senate Democrats' plan for the debt crisis, pointing out underlying "gimmicks."

"The House has passed a bill to raise the debt limit with bipartisan support. And this week, while the Senate struggles to pass a bill filled with phony accounting and Washington gimmicks, we will pass another bill -- one that was developed with the support of the bipartisan leadership of the U.S. Senate."

Turns out Boehner wasn't too far off the mark. Looking closely at the presented plans, there are many so-called "gimmicks" that stand out -- in the Democrats' and Boehner's own outline.

quicklist: 1title: Tax Cut or Tax Hike? text: Part of what doomed the short-lived Gang of Six plan was a disagreement over taxes. Some of the Bush tax cuts passed in 2001 and 2003 would be allowed to expire as normal in 2013, whereas others -- those that benefitted the middle class -- would be extended. Democrats pushing for the plan present this as a $1.5 trillion tax cut, whereas most Republicans argued that because it would mean higher taxes than are currently required for the wealthier part of the population, it's actually a $1 trillion tax hike. Both groups use this incident of tax reform to argue their side.media: 14147221caption: Use.

quicklist: 2title: The War Drawdown text:

Senate Majority Leader Harry Reid's proposal has what is billed as $1 trillion in cuts to military spending. However, as Committee for a Responsible Budget Policy Analyst Jason Peuquet points out, these cuts are based on the troop drawdown that President Obama announced in June. Reid is putting cuts that are already expected to occur in his plan for spending cuts going forward, essentially counting them twice. White House Press Secretary Jay Carney defended those cuts Wednesday, saying they are "absolutely legitimate."

"This is the result, as any other policy decision you make is a choice about how much money to spend, and that's what these decisions are," Carney told ABC's Mary Bruce. "You're saying -- I mean, if you're asking me are -- is the -- you know, are we going to save a trillion dollars because of the policy decisions that this president made, I'd say yes."

But Peuquet disagreed. He said these savings are a technicality, because they are based on policies that are already in place.

"This isn't anything new, so it's not right to be counting these as savings," Peuquet said.

A Republican Budget plan passed by the House but stymied by the Senate also assumed these "cuts."

quicklist: 3title: Long -- Really Long–Term Savings text:

In April, the president's budget plan reported $4 trillion in savings over a 12-year framework. It's an odd length of time for a projected budget. Most are based on either five- or 10-year projections. And here is why. If the plan had cut off at 10 years, there was not nearly as much saved. The Center for a Responsible Federal Budget estimated that in a decade, the plan would net only $2.5 trillion -- leaving $1.5 trillion to be made up in a two-year period. Obama's extension of the time window gave a false sense of what would be done here and now to reduce the deficit.

In a similar vein, Reid has been accused of backloading his plan -- saving very little upfront and pushing all the cuts down the road.

Peuquet said one of the risks that you run with creating a long-term fiscal plan is that caps Congress self-imposes on its own ability to spend money and long-term savings could fall by the wayside as new policy decisions are made. If these caps lack the support and political will of lawmakers down the road, they are nearly useless. Or, if another party takes over Congress, they are likely to have different priorities and ignore spending caps put in place by their predecessors

The Committee for a Responsible Federal Budget suggests policymakers consider adding "enforcement mechanisms." For example, a bill could require a two-thirds vote from the Senate to repeal certain caps. Another option would ensure repealing these caps triggers the automatic repeal of health care mandates and simultaneous tax increases – outcomes that would hurt on both sides of the aisle.

Though these tactics have had a historically mixed success rate, they might be the best option.

"We think it holds a lot of promise because the political will is going to be the most important thing but enforcement mechanisms can make sure that that political will can actually materialize in savings," Peuquet said.

quicklist: 4title: Savings on Interest text:

This one is complicated and could make your eyes cross.

CBO currently counts savings on interest payments based on payments that they won't have to make because of money that they won't spend. This isn't really a gimmick so much as a really confusing, circular method of cost-cutting. If Congress cuts an existing program, they get credit from their nonpartisan accounting arm for cutting the dollar amount of the program, but also interest on payments incurred by that program in the future.

There's nothing wrong with counting savings on interest, according to Peuquet, as long as those savings come from specific policies – something that has not been widely discussed in Boehner's or Reid's plans.

"It's completely valid to include it as long as there aren't phony savings," Peuquet said.

Of course without specifics, it is impossible to know if these savings are genuine or imaginary.

quicklist: 5title: The Drop-Deadline text:

The debt deadline itself is somewhat of a gimmick. Washington has been in a state of perpetual countdown since Treasury Secretary Tim Geithner assigned Aug. 2 as the day the U.S. would run out of money. The deadline has shifted a number of times over the spring and summer and the U.S. actually reached the debt limit back in May. But since then the Treasury Department has been spending money that would otherwise go into federal retirement accounts to save its bills. It has given those retirement accounts IOUs, assuming a debt ceiling increase would ultimately be ratified.

quicklist:6title: Artificial Baseline text:

Most parties agree the ultimate problem with estimating savings is the lack of an accurate baseline figure. Whether it's expanded with discretionary spending and inflationary measures not based on hard numbers or, as Concord Coalition Executive Director Bob Bixby put it, "Baseline Bingo" – where each side keeps throwing out numbers until they get a win – there is no hard and fast figure to start with.

Peuquet pointed to an aspect of Medicare that skews this number. Optimistic plans assume that we will follow through with the doc-fix and pay less for Medicare health services than we have in the past, in line with the Medicare Sustainable Growth Rate. In order to be on course with this measure, Peuquet said, payments would have to drop by about 30 percent.

In reality, it is unlikely that these payments will drop at all. They have not in the past, but these plans bank on the assumption that they will.

But is raising the debt ceiling and coming to a compromise a worthwhile issue for all this energy and discussion? Bixby said that fixating on the plans on the table neglects real problems at hand. Republicans will keep taxes on the table while Democrats remain focused on entitlements. No solution that comes out in the next five days is going to fix that problem, in his eyes.