Analysts have decreed that President Obama’s speech in the Rose Garden on Monday was a political statement designed to rally his political base rather than engage in real negotiations with Republicans on Capitol Hill — who may be beyond negotiations with this president in any case.
But we deal in facts. How factual were various assertions made by the president?
“All told, this plan cuts two dollars in spending for every dollar in new revenues.”
You have to dig deep into the president’s plan for these numbers, but this claim is suspect. It really depends on what one thinks is the baseline for spending.
The plan includes what the president calls $1.57 trillion in “tax reform” (mostly tax increases), so in theory that would mean $3.1 trillion in spending cuts.
Looking at Table S-1 in the plan, the White House gets there by adding together:
(A) $1.18 trillion from the budget deal over the summer (cuts still be to determined)
(B) $1.09 trillion from ending the wars in Iraq and Afghanistan (money already saved in the president’s budget)
(C) $577 billion from savings in various mandatory-spending and health care programs
That adds up to $2.84 trillion.
But the White House also includes $432 billion in savings on interest on the debt, bringing the total to $3.27 trillion. But wait! There’s also $447 billion in spending in his jobs bill.
That brings us back down to about $2.8 trillion.
That’s more or less 2 for 1, which you could argue is technically correct. But the savings from wars was already in the president’s February budget. And the president has long said that he intended to wind down the war in Iraq and also in Afghanistan. So should he give himself credit for cutting spending on something he never intended to spend in the first place?
An administration official notes that the February budget was never enacted, so it is still a change from the budget baseline, and ergo, a cut.
But the president’s February budget showed that these savings on the wars was achieved by simply setting a $50 billion cap on spending for each of the next nine years. So no hard policy choices actually were involved in making this spending “cut.”
An administration official, however, noted that the Bush administration simply assumed no additional costs for waging the wars, so “our $50 billion placeholder was a big improvement on the previous administration who assumed that future costs would be zero.”
That gets the administration some points for budget honesty on the cost-side, but it does not explain taking credit on spending-cut side.
“The American Jobs Act will not add to our nation's debt.”
As we have noted before, the president makes this claim because under the budget rules in Washington, it is acceptable to claim you pay for everything as long as the costs and revenues line up over ten years.
Still, even with all of the claimed savings over ten years, the hard truth is that because of the president’s jobs plan, the deficit would increase $303 billion above the anticipated deficit in 2012, to a total of $1.33 trillion. Then, in theory, it would decline slightly in 2013 before really beginning to decline in later years.
The jobs bill may be exactly the right medicine the nation needs now — that’s for economists to decide — but the fact is it will add to the debt in the near term. In the long run, these numbers are all estimates — and subject to the decisions of future Congresses.
“I've said before Social Security is not the primary cause of our deficits, but it does face long-term challenges as our country grows older. And both parties are going to need to work together on a separate track to strengthen Social Security for our children and our grandchildren.”
President Obama proposes to cut the payroll taxes, which are used to help fund Social Security. In reality, this means that $240 billion in general revenues will need to be diverted to Social Security in order to make up for the lost payroll taxes. (The administration will issue Treasury bonds to Social Security to make up for the difference.)
Some, such as Social Security Trustee Chuck Blahaus, and 61 Democrats in the House of Representatives, have warned that this diversion of funds could in effect begin to transfer the retirement program from an earned benefit into an income-tax based system more akin to welfare. That in turn could make Social Security’s political prospects suffer, especially if such a payroll tax cut becomes a permanent fixture.
For more on Social Security, please read our comprehensive primer on Social Security.
“Back when these [George W. Bush] tax cuts back in 2001, 2003, were being talked about, they were talked about as temporary measures.”
This isn’t accurate. The Bush administration always intended these tax cuts to be permanent, but in a cynical budget move, it worked with Republicans (and some Democrats) in Congress to sunset the provisions early so that even bigger tax cuts could be enacted.
In effect, the 2001 law was $1.6 trillion tax cut over ten years, but because it was sunset in the tenth year, it only “cost” $1.35 trillion, thus keeping within the budget box set by Congress. Otherwise, to bust that box, Republicans would have needed 60 votes in the Senate.
But the plan was always to make sure the tax cuts never disappeared. As The Washington Post quoted Sen. Don Nickles (Okla.), the Number 2 Republican in the Senate at the time, as saying right after Bush signed the tax cut into law: "I hope and expect it will be made permanent."
The Pinocchio Test
Within the context of Washington budget sausage making, the president’s claims are not terribly out of line. (Believe us, both parties play these games.) But, for ordinary Americans, the assertions are misleading and probably confusing, especially claiming credit for cutting spending on wars that the president has repeatedly promised to end.
We debated whether this is one Pinocchio — no outright falsehoods — or two Pinocchios — a misleading impression by playing with words and using legalistic language. It probably falls somewhere in between, but we don’t award half Pinocchios.