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Avoiding Budget Gimmicks

February 2014

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The Debt is On an Unsustainable Long-Term Path

Source: CBO Current Law with War Drawdown Savings, CRFB calculations

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 202460%

70%

80%

90%

Current Law with War Drawdown

77 Percent of GDP

Percent of GDP

Deb

t Hel

d By

the

Publ

ic

2

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Debt is Worse if Congress Does Not Pay For Changes

Source: CBO, CRFB calculations

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 202460%

70%

80%

90%

80 Percent of GDPPermanent Doc Fix

Extension of Normal Tax Extenders and Refundable Tax Credits

Deb

t Hel

d By

the

Publ

ic

Percent of GDP

3

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Debt is Worse if Congress Does Not Pay For Changes

Source: CBO, CRFB calculations

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 202460%

70%

80%

90%

84 Percent of GDP

Repeal of Future Sequester Cuts

Percent of GDP

Deb

t Hel

d By

the

Publ

ic

4

CRFB.org

Debt is Worse if Congress Does Not Pay For Changes

Source: CBO, CRFB calculations

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 202460%

70%

80%

90% 86 Percent of GDP

Extension of Unemployment Benefits and Bonus Depreciation

Percent of GDP

Deb

t Hel

d By

the

Publ

ic

5

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The War Savings Gimmick

Source: CBO, OMBNote: “War Spending” refers to OCO budget authority. CBO baseline maintains current war spending with inflation, while their “Troop Reduction Schedule” uses CBO’s drawdown of war spending assuming troop levels are reduced from 85,000 in 2013 to 30,000 by 2017.

CBO assumes war spending will grow with inflation, rather than fall as intended

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024$0

$20

$40

$60

$80

$100

$120

War

Spe

ndin

g Reduce Troop Levels as Scheduled

Billions

Increase Current War Spending With Inflation (CBO Baseline)

CBO’s Troop Reduction Schedule

President’s War Funding Levels

6

CRFB.org

The War Gimmick Does Not Generate Real Savings“[R]eductions relative to the [CBO] baseline might simply reflect policy decisions that have already been made and that would be realized even without such funding constraints.”

— Congressional Budget Office

“Drawing down spending on wars that were already set to wind down and that were deficit financed in the first place should not be considered savings. When you finish college, you don’t suddenly have thousands of dollars a year to spend elsewhere — in fact, you have to find a way to pay back your loans.”

— Maya MacGuineas, Committee for a Responsible Federal Budget

“The savings from troop reductions in Iraq and Afghanistan do not represent actual savings.”

— James Horney, Center on Budget and Policy Priorities

“An honest budget cannot claim to save taxpayers’ dollars by cutting spending that was not requested and will not be spent.”

— Chairman Paul Ryan, House Budget Committee

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Small Phony War “Savings” Create a Huge Potential Slush Fund

Source: CRFB calculations based on CBO and OMB dataNote: Spending refers to budget authority. “Current War Spending, Inflated” refers to CBO’s current law baseline war budget authority. “Planned Troop Drawdown” uses CBO’s drawdown of war spending assuming troop levels are reduced from 85,000 in 2013 to 30,000 by 2017.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

Planned Troop Drawdown$50 Billion Phony War "Savings"Current War Spending, Inflated

War

Spe

ndin

g

$50 Billion in Phony Savings

~$600 Billion Slush Fund

Caps above intended spending do not create savings. They open the door to new costs.Billions

8

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-$4,000

-$3,000

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

2014 2015 2016 2017 2018 20192020 2021 2022 2023 2024

Savi

ngs

to th

e Fe

dera

l Bud

get

Costs Con-tinue

2014-2019 Savings: $17 billion

2020-2024 Costs: $13 billion

Timing Gimmick #1 – Savings Now Which Cost Later

Source: Congressional Budget Office, 2/7/14

Pension smoothing would reduce deficits in early years but increase them over time

Billions

9

CRFB.org

Pension Smoothing Does Not Generate Real Savings“These are gimmicks, plain and simple...collecting more taxes now and less in taxes later doesn't help our bottom line.”

— Maya MacGuineas, Committee for a Responsible Federal Budget

“This proposed change in pension funding rules can’t ‘pay for’ anything. While it would raise money at first, it would lose money in later years.”

— Chye-Ching Huang, Center on Budget and Policy Priorities

“The proposal to ‘smooth’ pension contributions would merely shift tax revenue from the future into the present while destabilizing pensions even further and increasing the risks of a taxpayer pension bailout.”

— Romina Boccia, Heritage Foundation

“Such tactics mock the very idea of PAYGO. These are not offsets. They are charades.”

— Bob Bixby, Concord Coalition

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Timing Gimmick #2 – Shifting Savings Inside the Budget Window

Source: Congressional Budget Office and CRFB staff calculations

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

Man

dato

ry S

eque

ster

Sav

ings

10 Year Increase in Savings: $2.1 Billion 11th Year Cost: $2.1

Billion

The “Pathway to SGR Reform Act” shifted $2 billion of the sequester from 2024 to 2023

Billions

11

CRFB.org

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026-$30

-$20

-$10

$0

$10

$20

$30

$40

$50

$60

Timing Gimmick #3: Temporary Savings, Permanent Costs

Source: CRFB staff calculations based on CBO estimates. For simplicity, numbers exclude interest savings.

Billions End of the 10-year budget window

Costs Continue:

~$10 bn/yrDebt Impact

Using one-time savings to pay for a permanent tax cut will increase debt in future years

Savi

ngs

to th

e Fe

dera

l Bud

get

10-Year Costs From a 1% Corporate Rate Cut: $113 billion

10-Year Savings from Repealing LIFO:

$114 billion

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CRFB.org

2015 2016 2017 2018 2019 2020 2021 2022 2023 20240

5

10

15

20

25

30

35

40

Cum

ulati

ve C

osts

The Harm in Offsetting 1st-Year Costs with 10th-Year Savings

$25 billioncosts

$25billionsavings

$8.4 billion

interest

Note: Graph assumes $25 billion in 2015 costs paid for with $25 billion of savings in 2024

Accrued interest from waiting 10 years could leave a third of a bill’s costs unpaid.

Rising Costs from Accumulated Interest

Billions

13

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For More Information, Contact Stark Sutton at

Sutton@crfb.org or 202-735-2811