March 16, 2010 | Commentary on Budget and Spending, Economy

All the Presidents Budget Gimmicks

President Obama's new budget proposal would raise taxes by $3 trillion over the decade -- and still double the national debt.

He inherited unsustainable Social Security, Medicare, Medicaid and net interest costs, but instead of paring spending back, decided to pile on trillions of dollars in new health care, education and energy spending. Even the historic tax increases proposed by the president would cover only a fraction of these new costs. By 2020 -- even assuming peace and prosperity -- the budget deficit would still top $1 trillion. At that point, more than one-third of all income taxes would be needed just to pay the interest on this debt.

Yet it could be even worse.

Mr. Obama deserves credit for reversing President Bush's budget gimmicks of not budgeting for the Alternative Minimum Tax patch, the global war on terrorism and future unanticipated emergencies. But his budget contains numerous large gimmicks of his own:

Rosy economic scenario: Just like last year, the president's new budget assumes a rosy economic scenario. The White House projects a 2011 economic growth rate double the rate forecasted by the Congressional Budget Office (CBO). Overall, White House projects that in 2020 the economy will be nearly $1 trillion larger (adjusted for inflation) than the CBO estimates. If the economy performs closer to the CBO projections, it will raise budget deficits even higher.

Excluding cap-and-trade costs: Last year, the president simply excluded the cost of his health plan from his aggregate budget tables. This year, he budgeted for his health care plan, but removed the costs of his cap-and-trade plan, even though he has endorsed the House-passed bill that would raise taxes by $846 billion, and spending by $822 billion. The $3 trillion tax-increase figure above incorporates this cost.

A $132 billion "magic asterisk": The president's budget vaguely claims $132 billion in "program integrity" savings. The White House says this includes cleaning up waste in entitlement programs and increasing Internal Revenue Service enforcement of tax laws.Of course, government waste is easy to identify and difficult to eliminate. The federal government's track record on rooting out waste is abysmal, and promises to close the "tax gap" of unpaid taxes have not translated into progress.

$23 billion terminations and cuts?: Mr. Obama also hypes his $23 billion in proposed spending cuts and terminations (less than 1 percent of all spending). He doesn't mention that last year, every dollar saved from his $7 billion in spending cuts went into new government spending. Not a dollar went toward deficit reduction. And this year he proposes more of the same. Using "low-hanging fruit" budget cuts for new spending means that more of the higher taxes or spending cuts down the road must come from the remaining higher-priority policies.

The baseline assumes war spending rises forever: Repeating his much-maligned gimmick from last year's budget, the president first creates a fantasy baseline that assumes the Iraq surge continues forever (which was never U.S. policy), and then "saves" $728 billion against that baseline by ending the surge as scheduled under his policies. It is like a family "saving" $10,000 by first assuming an expensive vacation and then not taking it.

Low-balling discretionary spending: Mr. Obama wisely proposed temporarily freezing a small sliver of discretionary funding (albeit at an inflated level). However, over the next decade, the president assumes that non-war, non-emergency discretionary spending will expand by 30 percent, just slightly faster than inflation. But in reality, discretionary spending surged by 104 percent during the past decade. The free-spending Democratic Congress provides no reason to expect sudden austerity. If discretionary spending instead grows at the same rate as the economy (about 5 percent nominally per year), it would add about $400 billion to the 2020budget deficit.

PAY-GO: Mr. Obama bases much of his proposed budget restraint on his new "pay-as-you-go" (PAY-GO) law. While the PAY-GO concept -- that Congress must offset the cost of any new initiative -- sounds promising, its glaring loopholes mean it won't reduce the deficit at all. PAY-GO exempts all discretionary spending (which makes up 40 percent of the budget) from its constraints. It exempts the automatic annual growth of Social Security, Medicare and Medicaid, which threatens Washington's long-run solvency. It exempts the endless stream of emergency "stimulus" bills. When PAY-GO is violated, nearly all spending is exempt from being cut to offset the new expansions. PAY-GO is designed to serve more as a talking point than as a tool for deficit reduction.

Deficit Commission: Rather than take the lead and propose entitlement reforms that would reduce the deficit, the president has appointed a commission to devise a plan. While some commissions may be useful, this one likely will not. The deficit commission currently plans to write its recommendations in a back room without public hearings or public buy-in. These recommendations won't be unveiled until after the election, where they would be voted on by a lame-duck Congress -- if they are even voted on at all. (There is no "fast-track" procedure guaranteeing a vote.) The American people will be unlikely to embrace major tax and spending changes thrust upon them with so little transparency and voted on by an unaccountable lame-duck Congress.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

Related Issues: Budget and Spending, Economy

First appeared in The Washington Times