Is Obama’s $4 trillion deficit-reduction plan for real?

September 6, 2012

In his fact check of the second night of the Democratic National Convention, my colleague Glenn Kessler zeroed in on Bill Clinton's claim that "[Obama] has offered a reasonable plan of $4 trillion in debt reduction over a decade."


Are Obama's budget proposals for real?

Kessler has three problems with this comment. First, he says, it is "counting some $1 trillion in cuts reached a year ago in budget negotiations with Congress." Second, "the administration is also counting $848 billion in phantom savings from winding down the wars in Iraq and Afghanistan, even though the administration had long made clear those wars would end." Third, "the administration also counts $800 billion in savings in debt payments (from lower deficits) as a 'spending cut,' which is a dubious claim."

I actually have some problems with this claim, too. But I disagree with Kessler's particular objections. Let's take them in order.

First, there was (and arguably is) widespread agreement in Washington that we need about $4 trillion in deficit reduction. That's what Simpson-Bowles got (though we'll come back to this claim in a few minutes). And so the administration's plan is an effort to show how they get to that magic $4 trillion. As such, they included the $1 trillion in cuts they had already signed into law. Kessler argues those cuts were "already banked," but that doesn't make them any less a part of the administration's plan to hit that $4 trillion in total deficit reduction. If you broke the Simpson-Bowles plan into four chunks and passed them one at a time, would the second chunk still count as part of the plan?

The war spending is a bit more complicated. These are savings that everyone already expects to happen, but that haven't happened yet. But that means that in the Congressional Budget Office's projections of future spending, that money is in the deficit projection. So when you hear people in Washington say that we're facing large deficits over the next decade, they're including those war costs. So you can say that cutting that spending -- which makes expected savings into law -- is a spending cut, or you can say the deficit projection was inflated by the war costs, and as such, we need less deficit reduction than we thought. Either way, it's six of one, a half-dozen of the other.

As for counting interest payments as a spending cut, I feel Kessler on this one. I think it's a bit weird -- particularly because a big chunk of those reduced interest payments are coming because Democrats are raising taxes. But note that Simpson-Bowles, Domenici-Rivlin, and the Ryan budget, and pretty much every other deficit-reduction plan does the same thing. And it's not as if reduced interest payments aren't an actual cut in future federal spending. Those payments cost real dollars. So, whatever you think of how they're categorized, lowering them is deficit reduction.

As a general point, I think there's a peculiar dynamic that affects the deficit-reduction conversation in Washington: People prefer "tough" cuts to cuts they think are easy (though the cuts in question are rarely tough on the people analyzing them). So they give a lot more credit to, say, raising the Medicare eligibility age, as that hurts seniors, than to officially drawing down the war spending, or cutting interest payments, or banking the results of a deal. But the deficit doesn't care how much the cuts hurt. It's all about the bottom-line number. Which gets me to my issue with Obama's deficit-reduction plan.

I think the actual dodge here is in the bottom line figure. It was the Simpson-Bowles Commission that got $4 trillion stuck in everyone's head. But they also made up their own baseline which included the expiration of the high-income Bush tax cuts and, as I understand it, the drawdown of the war efforts. So when you really ran the numbers on their plan, it was above $5 trillion, and at this point, if you implemented their plan tomorrow, it would be more than $7 trillion over the next 10 years. There's a good case to be made that Obama's budget doesn't actually hit the deficit-reduction target it's implying that it hits.

So that's my take on Obama's deficit-reduction plan. But so long as I'm picking some nits with Glenn, one more thing. He writes that "Obama’s jobs plan was more of a rhetorical device, aimed at Republicans, rather than a real plan."

His specific problem is that Obama proposed some of the same savings to pay for the jobs plan as he proposed to reduce the deficit. I don't have a very strong view on this -- the Republicans hadn't agreed to Obama's deficit-reduction plan, so those savings were still out there to be used -- but wherever you come down, it's a criticism of the offsets to the American Jobs Act. It seems irrelevant to whether the American Jobs Act was a "real plan." Kessler also notes that no one expected it to pass, but surely the fact that something won't pass can't be the test of whether it's a serious policy proposal? In Washington, I'd argue the opposite is more often true: Policy gets less serious and credible as it gets closer to a supermajority in Congress.

The American Jobs Act was very much a real plan. It's extremely detailed, the proposals make good sense, and independent analysts were quite impressed by it. Moody's Analytics called it "a laudable effort" that would add 1.9 million jobs, and Macroeconomic Advisers estimated it would add 2.1 million jobs. Thus far, it hasn't gone anywhere. But it's the single most significant and specific jobs plan that any major politician from either party has put on the table.

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