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

Posted By Patrick Tyrrell On August 2, 2011 @ 12:00 pm In Ongoing Priorities | Comments Disabled

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 [1] to congressional leaders is somewhat misleading.

Table 3 [1] 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 [2] 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 [3].

 


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

URL to article: http://blog.heritage.org/2011/08/02/debt-ceiling-plan-to-cut-only-1-7-trillion-when-adjusted-for-inflation/

URLs in this post:

[1] letter: http://cbo.gov/ftpdocs/123xx/doc12357/BudgetControlActAug1.pdf

[2] headline: http://www.latimes.com/news/politics/la-pn-debt-ceiling-cbo-20110802,0,941643.story

[3] here: http://thf_media.s3.amazonaws.com/2011/xls/CBOInflAdjusted2.xls

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