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A Voodoo Baseline Won't Reduce the Deficit

Posted By Kathryn Nix On March 21, 2011 @ 11:30 am In Economics | Comments Disabled

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As Congress continues the struggle to tame federal deficit spending, some argue that tax hikes and defense cuts are necessary and inevitable. For example, a recent brief [2] from the Concord Coalition on the prospects for the House Majority’s coming budget resolution for fiscal year 2012 makes the case that conservatives will be hard pressed to reduce the deficit without raising taxes or cutting national defense.

The Concord Coalition looks at various deficit-cutting strategies that conservatives in the House might embrace and compares the results to those of the President’s own budget proposal. But the President’s budget is scored according to the assumptions the White House chooses to make. Heritage budget expert Brian Riedl points out [3] that the budget “hides multiple new policies and assumptions within the baseline itself.”

These include $800 billion in new taxes from assuming the 2001 and 2003 tax cuts expire partially, $118 billion in additional Pell Grants, and $1.7 trillion in additional phantom revenue from unrealistic economic assumptions. According to Riedl [3], “[W]hile there is some legitimate deficit reduction, $1.7 trillion of the $2.2 trillion in claimed savings are pure gimmicks and magic asterisks. Of course, the proposed spending increases—the Medicare doc fix, new transportation spending, high-speed rail, more Pell Grant entitlements, and another round of $250 checks for senior citizens—are all real and scoreable.”

By assuming an unrealistically rosy economic outlook, the White House was able to rely on phantom revenue from economic recovery for “deficit reduction,” even absent any policy changes. Meanwhile, Concord insists that the House Budget Committee should continue to use Congressional Budget Office (CBO) numbers in scoring its own budget. Since CBO’s projected economic growth is significantly less favorable than the President’s, this would stack the deck against Chairman Paul Ryan’s (R-WI) proposal. It became clear with the release of CBO’s analysis of the President’s proposal [4] that the assumptions behind the projection make a big difference. While the White House estimated that deficits over the next decade would total $7.2 trillion under the President’s budget plan, CBO estimated they would come in closer to $9.5 trillion.

Finally, the CBO baseline includes flaws of its own. CBO is required to assume that current law will be enacted as it is written, which disregards the past behavior of Congress and its likely future behavior. The agency itself even acknowledges this, which is the reason behind its creation of an “alternative fiscal scenario” to accompany the extended baseline. This includes all of the policies that are unlikely to occur as written according to law. For example, the 2001 and 2003 tax cuts are expected to expire for all earners in 2012, and the alternative minimum tax is assumed to extend to the middle class as scheduled. CBO assumes the expiration of tax extenders and that unrealistic cuts to Medicare physician payments go into effect. None of these is likely to occur, and these assumptions create the illusion of smaller future deficits. Since failing to raise taxes is not a tax cut and therefore does not add to the deficit, in creating a budget for FY 2012, the House Budget Committee should not be held liable for CBO’s misguided baseline.

According to the Concord brief [2], “Budget scoring gimmicks or adopting a rosy economic scenario can always be used in place of hard choices, but this comes at the expense of credibility.” These are precisely the methods employed in the President’s budget to create the appearance of reduced deficits. In drafting a budget proposal for FY 2012 [5], House conservatives should make the hard choices [5] President Obama failed to make in his own budget. Honest accounting may paint a different picture than that of the President’s budget or the CBO baseline, but that is not reason enough to include unwise policy changes that would harm national security or require burdensome tax increases in the future.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/03/21/a-voodoo-baseline-wont-reduce-the-deficit/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/Budget-FY-2012.jpg

[2] recent brief: http://concordcoalition.org/files/uploaded-pdfs/Ryan_Budget_Dilemma_March2011.pdf

[3] Heritage budget expert Brian Riedl points out: http://www.heritage.org/Research/Reports/2011/03/Obama-s-2012-Budget-Offers-More-Gimmicks-Not-Reform

[4] CBO’s analysis of the President’s proposal: http://cboblog.cbo.gov/?p=1985

[5] budget proposal for FY 2012: http://www.heritage.org/Research/Reports/2011/03/How-to-Fix-the-Federal-Budget

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