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  • Debt Ceiling Plan to Cut Only $1.7 Trillion When Adjusted for Inflation

    The Congressional Budget Office (CBO) announced yesterday that the Budget Control Act of 2011 would lead to $2.1 trillion in deficit reductions. But the CBO’s letter to congressional leaders is somewhat misleading.

    Table 3 of the document shows how much in discretionary and mandatory deficit reduction the CBO estimates would be produced by the legislation from fiscal years 2012 through 2021. They found about $918 billion cuts. The remaining $1.2 trillion in cuts is not predicted by year, because, as CBO notes, “The composition of the other $1.2 trillion in savings over time and across budget categories would depend on the specific provisions of any legislation stemming from proposals of the joint select committee and the extent of any automatic reductions that would be triggered.”

    So only $918 billion cuts are scored by CBO, and those are in nominal (not inflation-adjusted) dollars. When adjusted for inflation using the Personal Consumption Expenditure Deflator, the $918 billion becomes only $717 billion constant year (2005) dollars.

    The $1.2 trillion in additional cuts—which depends on what the joint committee decides or what automatic reductions are made—is also presented in nominal dollars. If inflation ends up being at the same rate as for the known cuts, the $1.2 trillion in constant 2005 (adjusted for inflation) dollars becomes only $937 billion in cuts.

    Policymakers need to judge the value of these proposed spending reductions in dollar values that they and their constituents understand—today’s dollars. Using inflated dollar values distorts the impact of the Budget Control Act on debt reduction. The real dollar total of the CBO estimated deficit cuts is closer to $1.654 trillion ($717 billion + $937 billion) in deficit reductions, much less than the headline number of $2.1 trillion nominal dollars. Not everyone notices inflation inching upwards in their day-to-day transactions, but a dollar in 2021 will be worth less than a dollar in 2012. There’s no sense confusing the numbers.

    A spreadsheet with inflation-adjustment calculations used can be found here.


    Posted in Ongoing Priorities [slideshow_deploy]

    4 Responses to Debt Ceiling Plan to Cut Only $1.7 Trillion When Adjusted for Inflation

    1. John G says:

      Wait, you mean we were lied to about how much money is actually going to be "cut"???? That's unpossible.

    2. Stirling says:

      Cutting 1.7T over 10 years is a joke when you consider the debt increasing by 8.3T over the same period of time. (with the savings included.) No more baseline budgeting gimics of automatic 8% raises per year would be a nice start to REALLY cutting spending. FREEZE then CUT. Anything else is just a democrat tax raise. Sorry GOP you got pwnt.

    3. terry murphy says:

      I am not surprised. I find it easier to believe less than half of what our congress, and especially what our president tells us. unfortunately, thee are not many choices for personnel to improve our government. the GOP field is dim. Obama may just win by default. The only option left to the populace is to collectively demand from every member of congress, our president and his czars and employee of our government to be ACCOUNTABLE and live within our means. when i hear that Obama;s MO is to bankrupt the US, in the past I brushed it off. Not any longer.

    4. John Little says:

      I am not surprised, We can not believe what we are told. They all try to see how stupid the americans are and they know how many are out here that don't want to be involved in politics so they just try to tell the others something. We need to get to term limits for all in Washington. Its the only way we will ever make any progress on our problems. There are too many getting rich on us. We must vote out Obama in the next election. Bye, Bye.

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