CRFB.org
Avoiding Budget Gimmicks
February 2014
CRFB.org
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
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%
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
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%
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
CRFB.org
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
7
CRFB.org
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
CRFB.org
-$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
10
CRFB.org
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
12
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