One Hand Taketh Away, the Other Hand Giveth
In his State of the Union speech, President Barack Obama proclaimed, “Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion.” It’s a claim that the president makes frequently — along with the notion that having done all that heavy lifting, Washington now needs to find a trifling extra $1.5 trillion in spending cuts or tax increases to end the nation’s debt problems.
But have Washington politicians really reduced the deficit by $2.5 trillion? “They have not,” answered budget guru Patrick Knudsen of the conservative Heritage Foundation. “They have put in place some proposals that would reduce spending if they hold up, but most of that has not happened.”
The 2011 Budget Control Act, Knudsen said, “reduced spending from what it would have been without (spending) caps, because it’s measured against a base line against inflation. The result this year is effectively a freeze on discretionary spending.”
Spending in 2013 will be about the same as it was in 2012, but tax revenue will be higher. The fiscal cliff deal negotiated with Congress ended President Obama’s two-year, 2 percent payroll tax holiday; that means about $93 billion in new revenue this year. The Obama tax hikes on the rich are expected to deliver another $27 billion. Almost all of this year’s deficit reduction will come from tax hikes, not spending cuts.
It’s funny — well, not really — how tax increases materialize during the year in which they are passed whereas spending cuts take forever. The Budget Control Act mandates more than $2 trillion in cuts over the next decade — more than $900 billion in caps on the growth in spending and $1.2 trillion in the infamous sequester cuts, which would lower the caps further. Caveat taxpayer: In the future, Congress will have to vote to stick with the 2011 caps in order for the cuts to hold.
“Almost immediately after a Congress enacts a spending reduction measure of any kind, there’s a lawmaker behind it with a bill ready to repeal,” noted National Taxpayers Union spokesman Pete Sepp. In this case, after the president signed off on the Budget Control Act, he tried to sabotage the sequester cuts. He didn’t even put them in his 2013 budget. And it looked as if Republicans were going to accommodate him — until they didn’t.
The 2011 law mandated $110 billion in sequester cuts starting Jan. 1. But in the fiscal cliff deal, Congress agreed to put off the cuts until March 1 and reduce the total to $85 billion. The Congressional Budget Office, however, expects the actual outlay — what Washington actually spends this year — to be more like $44 billion.
That should mean Uncle Sam will spend $44 billion less in this year’s $3.7 trillion budget, right? But as Knudsen points out, Washington passed a $50 billion “emergency” bill in the wake of Hurricane Sandy, which added to the deficit. Washington can add, but not subtract.
Few fiscal hawks would want Washington to close the deficit by spending cuts alone this year. “You couldn’t rationally cut $800 billion from the budget this year to balance the budget,” Robert Bixby, executive director of Concord Coalition, rightly noted. The economy would tank.
That said, Bixby is leery of the vaunted claim of $2.5 trillion in deficit reduction, because the Budget Control Act focused on discretionary spending, even though entitlement spending is the big cost driver. If Washington had chosen to cut spending by reforming Medicare and Social Security, Bixby noted, the cuts could work more smoothly. (Washington could slowly raise the retirement age or recalculate how inflation is indexed.) By targeting discretionary spending, lawmakers have built in incentives for future Congresses to budget outside the 2011 caps. That’s why Bixby takes Washington’s “calculations with a grain of salt.”
“Because the savings achieved so far have come from discretionary (spending) and revenue sources rather than reforms to rapidly growing entitlements, lawmakers have actually solved a much smaller portion of the long-term problem,” the Committee for a Responsible Federal Budget warned in a recent paper. Assuming the Budget Control Act spending cuts happen, the paper concluded, Washington has enacted “only slightly more than half of what is necessary this decade.”
That is, Washington didn’t fix the big problem.
It’s almost as if Washington went about deficit reduction the wrong way on purpose. The other smart way to cut would be to go after programs that don’t work, said Sepp; instead, “lawmakers are devoting huge amounts of energy to gaming scoring windows — to the point where it’s a mathematical exercise, not real policymaking.”
In this universe, what one hand taketh away, the other hand giveth. The 1997 Balanced Budget Act balanced itself in part by decreasing payments to Medicare providers. But Washington cannot wave a magic wand and make health costs disappear; what vanished were doctors’ incentives for taking on Medicare patients. So periodically, in a nod to reality, Congress votes to take back the cuts with a mechanism called the “doc fix.”
That’s Washington in a nutshell. Amid much fanfare about the pain involved, politicians announce that they are cutting spending. Someday. Then, Knudsen concluded, “they end up spending more.”
Email Debra J. Saunders at: [email protected].