Tag: Baseline Budgeting

Exposing Washington’s Dishonest Budget Math

I’ve repeatedly tried to expose pervasive fiscal dishonesty in Washington.

In these John Stossel and Judge Napolitano interviews, for instance, I explain that the crooks in DC have created a system that allows them to claim they’re cutting the budget when the burden of government spending actually is rising.

This sleazy system is designed in part to deceive the American people, and the current squabbling over the fiscal cliff is a good example. The President claims he has a “balanced approach” that involves budget cuts, but look at the second chart at this link and you will see that he’s really proposing bigger government.

This dishonest approach also was used by the President’s Fiscal Commission and last year’s crummy debt limit deal was based on this form of fiscal prevarication.

Here are some key excerpts from a Wall Street Journal editorial exposing this scam.

…President Obama and John Boehner are playing by the dysfunctional Beltway rules. The rules work if you like bigger government, but Republicans need a new strategy, which starts by exposing the rigged game of “baseline budgeting.” …numbers have no real meaning because they are conjured in the wilderness of mirrors that is the federal budget process. Since 1974, Capitol Hill’s “baseline” has automatically increased spending every year according to Congressional Budget Office projections, which means before anyone has submitted a budget or cast a single vote. Tax and spending changes are then measured off that inflated baseline, not in absolute terms. …Democrats designed this system to make it easier to defend annual spending increases and to portray any reduction in the baseline as a spending “cut.” Chris Wallace called Timothy Geithner on this “gimmick” on “Fox News Sunday” this week, only to have the Treasury Secretary insist it’s real. …in the current debate the GOP is putting itself at a major disadvantage by negotiating off the phony baseline. …If Republicans really want to slow the growth in spending, they need to stop playing by Beltway rules and start explaining to America why Mr. Obama keeps saying he’s cutting spending even as spending and deficits keep going up and up and up.

You probably won’t be surprised to learn that other nations rely on this crooked system, most notably the United Kingdom, which supposedly is imposing “savage” cuts even though government spending keeps rising (and they fooled Paul Krugman, though he seems to make a habit of misreading foreign fiscal and economic data).

But let’s return to the American fiscal situation. Republicans almost certainly will lose the battle over the fiscal cliff because they meekly are playing cards with a rigged deck controlled by the other side.

They should expose this scam by using nominal numbers and looking at year-over-year changes in both taxes and spending. I did that last year and showed how simple it is to balance the budget in a short period of time.

They key thing to understand is that (barring a recession) tax revenues rise every year. Indeed, the Congressional Budget Office projects that tax revenue will climb by an average of more than 6 percent annually over the next 10 years - even if the 2001 and 2003 tax cuts are made permanent.

So all that’s really needed to bring red ink under control is a modest bit of spending restraint. This video is from 2010, but the analysis is still completely relevant today.

It’s amazing how good things happen when you follow the Golden Rule of fiscal policy.

Peter Ferrara’s Too-Nice Attack on Phony Washington Budget Deals

Writing in the Wall Street Journal, Peter Ferrara of the Institute for Policy Innovation explains that Washington budget deals don’t work because politicians never follow through on promised spending cuts. This is a very relevant argument, since President Obama’s so-called Deficit Reduction Commission supposedly is considering a deal featuring $3 of spending cuts for every $1 of tax increases (disturbingly reminiscent of what was promised — but never delivered — as part of the infamous 1982 TEFRA budget scam).

Washington’s traditional approach to balancing the budget is to negotiate an agreement on a package of benefit cuts and tax increases. President Obama’s deficit commission seems likely to recommend just this strategy in December. The problem is that it never works. What happens is the tax increases get permanently adopted into law. But the spending cuts are almost never fully adopted and, even if they are, they are soon swept away in the next spendthrift budget. Then — because taxes weaken incentives to produce — the tax increases don’t raise the revenue that Congress initially projected and budgeted to spend. So the deficit reappears.

In 1982, congressional Democrats promised President Ronald Reagan $3 in spending cuts for every dollar in tax increases. Reagan went to his grave waiting for those spending cuts. Then there was the budget deal in 1990, when President George H.W. Bush agreed to violate his famous campaign pledge — “Read my lips, no new taxes,” he had said in 1988 — in pursuit of a balanced budget. But after the deal, the deficit increased substantially: to $290 billion in 1992 from $221 billion in 1990.

As the excerpt indicates, Peter’s column is solid and everything he writes is correct, but it suffers from one major sin of omission. He should have exposed the dishonest practice of using “current services” or “baseline” budgeting. This is the clever Washington practice of assuming that all previously planned spending increases should go into effect and categorizing any budget that increases spending by a lower amount as a spending cut. In other words, if the hypothetical “baseline” budget increases by 7 percent, and a budget is proposed that increases spending by 4 percent, that 4 percent spending increase magically gets transformed into a 3 percent spending cut.
 
Politicians love “current services” or “baseline” budgeting for two reasons. First, it allows them to have their cake and eat it too. They can simultaneously shovel more money to interest groups while telling voters they are “cutting” spending. Second, it rigs the process in favor of bigger government. This is because lawmakers who actually propose to restrain the growth of spending can be lambasted for wanting “savage” and “draconian” budget cuts totaling “trillions of dollars” when all they’re actually proposing is to have spending grow by less than the so-called baseline. But since people in the real world use honest math rather than “current services” math, they assume that spending is being reduced next year by some large amount compared to what is being spent this year. And if the phony budget cut numbers sound too big (especially for specific programs such as Medicare or Medicaid), they sometimes conclude that it would be better to raise taxes.

Speaking of which, the same misleading process works on the revenue side of the budget. The politicians automatically get to keep whatever additional revenue is generated by population growth and higher incomes, which is not trivial since revenue in a typical year grows faster than nominal GDP. But when they do a budget deal featuring X dollars of tax increases for every Y dollars of spending cuts, the additional taxes are always on top of the revenue increases that already are occurring. And since the supposed spending cuts invariably are nothing more than reductions in planned increases, it should come as no surprise that the burden of spending always seems to increase.
 
Defenders of “current services” or “baseline” budgeting will respond by arguing that spending should automatically increase because of factors such as inflation and demographic change (i.e., more seniors signing up for Medicare). Indeed, they will point out that the government is legally obligated to spend more money for entitlement programs based on current law.
 
But that’s not the point. The issue is whether the American people are being presented with honest numbers. If the fans of big government want to argue that spending should increase by 7 percent for various reasons, they should openly and honestly explain what they are trying to do. And if they disagree with lawmakers who want spending to increase by 4 percent, they should be forthright and tell voters that “this proposal does not increase spending by enough because of…” and list the reasons why they want spending to grow even faster.
 
Unfortunately, deceptive budget practices in Washington are a feature, not a bug. But if you pay close attention, they are very revealing. If the President’s Deficit Reduction Commission uses “baseline” or “current services” budgeting as a benchmark for determining spending “cuts” and tax increases, that’s a good sign that the crowd in Washington wants to pull a fast one on the American people.