How Washington looks at spending cuts


Yesterday, the Congressional Budget Office (CBO) released the first of its two major budget analyses of the year. For the rest of the week, Tea Party Patriots will be analyzing the importance of the report, as well as fact-checking claims made about it throughout American media.

We’ve already touched on some of the numbers in a post earlier today, but before going on it’s important to understand how the report analyzes spending, especially related to future deficits and the national debt.

When Tea Party activists talk about spending cuts, it’s usually in the context of cuts from the current level of spending. The Penny Plan – which Tea Party Patriots supports – for example, cuts 1% of the current level of non-interest federal spending. Those are straight cuts.

When Washington talks about cutting spending, it’s almost always from the expected baseline. As Tea Party Patriots examined in December 2012, the baseline spending in Washington always expects growth before cuts are enacted. This is why The New York Times, as we pointed out in December, can claim reductions in spending that still allow greater spending are cuts to the budget.

How is this relevant to yesterday’s CBO report? By law, CBO has to examine future debt from two perspectives – the baseline scenario and the alternative fiscal scenario. These are also known as the current law perspective and the current policy perspectives. As I pointed out when the CBO last released a major budget report, in August 2012, the differences are critical. Current law/baseline spending analyses assume all tax increases and spending cuts on the books will go into place. Current policy/alternative fiscal scenario (what I call the “political reality scenario”) makes assumptions about what politicians will really do. From my post in August:

[T]he baseline scenario looks at current law, meaning what is supposed to happen as of this moment. This means the CBO’s baseline scenario assumes major tax hikes via the Alternative Minimum Tax, elimination of the Bush tax policies and elimination of the payroll tax holiday. Does anyone really think this is realistic? Additionally, the baseline scenario assumes the Budget Control Act’s “cuts” go into place and that the “Doc Fix” cuts begin taking effect. Considering that Congress has delayed the Doc Fix cuts for nearly a decade, and the Budget Control Act is hated by both parties, is this realistic? Personally, I think not. And, actually, the CBO report agrees with me, with the exception of the payroll tax holiday.

The alternative fiscal scenario has its own flaws, of course. It makes sometimes-inaccurate assumptions, and all CBO examinations of tax policies assume taxes have a direction up-and-down relationship – meaning CBO does not account for the obvious changes in buying, saving, investment, and other decisions tax policies incentivize.

So how does this all relate to future spending cuts? First, as referenced above, cutting from the baseline expectations allows Republicans to claim reductions in expected spending are spending cuts. Second, it allows proponents of overspending to say reductions in expected spending are dangerous/painful cuts to the budget. Third, though not last, it allows proponents of higher taxes to say more revenue is needed to reduce deficits.

It also leads to (possibly intentional) confusion about the federal budget. From Glenn Kessler at The Washington Post’s “The Fact-Checker”:

As Washington begins another round of torturous budget talks, much of the discussion will be on how much deficit reduction has already been achieved—and how much is needed in the years going forward.

In order to even begin that discussion, all sides need to agree on the “baseline,” or the starting point. Amazingly, just adding or subtracting a few months from the baseline will result in a difference of hundreds of billions of dollars.

Democrats like to start the clock in August 2010, but Republicans argue that is a high point for discretionary spending, thus inflating the actual savings.

Kessler’s post is worth reading in full, but here is the key point:

A GOP staff member for the Senate Budget Committee produced the following numbers at our request….Essentially this shows the difference in claimed deficit reduction depending on the budget baseline; the August 2010 figure is highlighted.

Reduction in non-war discretionary budget authority

March 2010 baseline: $1.029 trillion

August 2010 baseline: $1.472 trillion

January 2011 baseline: $1.055 trillion

May 2011 baseline: $812 billion

In the end, baseline budgeting is incredibly dishonest and misleading, as Senator Rand Paul (R-KY) and Rep. Louie Gohmert (R-TX) pointed out when they spoke to Tea Party Patriots in November. As the week progresses, we encourage you to call your Members of Congress and insist they back zero-based budgeting in Washington – the same budget practices you and your families use every month and year.