Tag: freeze

State of the Union Fact Check

Cato experts put some of President Obama’s core State of the Union claims to the test. Here’s what they found.

THE STIMULUS

Obama’s claim:

The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act. That’s right – the Recovery Act, also known as the Stimulus Bill. Economists on the left and the right say that this bill has helped saved jobs and avert disaster.

Back in reality: At the outset of the economic downturn, Cato ran an ad in the nation’s largest newspapers in which more than 300 economists (Nobel laureates among them) signed a statement saying a massive government spending package was among the worst available options. Since then, Cato economists have published dozens of op-eds in major news outlets poking holes in big-government solutions to both the financial system crisis and the flagging economy.

CUTTING TAXES

Obama’s claim:

Let me repeat: we cut taxes. We cut taxes for 95 percent of working families. We cut taxes for small businesses. We cut taxes for first-time homebuyers. We cut taxes for parents trying to care for their children. We cut taxes for 8 million Americans paying for college. As a result, millions of Americans had more to spend on gas, and food, and other necessities, all of which helped businesses keep more workers.

Back in reality: Cato Director of Tax Policy Studies Chris Edwards: “When the president says that he has ‘cut taxes’ for 95 percent of Americans, he fails to note that more than 40 percent of Americans pay no federal incomes taxes and the administration has simply increased subsidy checks to this group. Obama’s refundable tax credits are unearned subsidies, not tax cuts.”

Visit Cato’s Tax Policy Page for much more on this.

SPENDING FREEZE

Obama’s claim
:

Starting in 2011, we are prepared to freeze government spending for three years.

Back in reality: Edwards: “The president’s proposed spending freeze covers just 13 percent of the total federal budget, and indeed doesn’t limit the fastest growing components such as Medicare.

“A better idea is to cap growth in the entire federal budget including entitlement programs, which was essentially the idea behind the 1980s bipartisan Gramm-Rudman-Hollings law. The freeze also doesn’t cover the massive spending under the stimulus bill, most of which hasn’t occurred yet. Now that the economy is returning to growth, the president should both freeze spending and rescind the remainder of the planned stimulus.”

Plus, here’s why these promised freezes have never worked in the past and a chart illustrating the fallacy of Obama’s spending claims.

JOB CREATION

Obama’s claim:

Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed. 200,000 work in construction and clean energy. 300,000 are teachers and other education workers. Tens of thousands are cops, firefighters, correctional officers, and first responders. And we are on track to add another one and a half million jobs to this total by the end of the year.

Back in reality: Cato Policy Analyst Tad Dehaven: “Actually, the U.S. economy has lost 2.7 million jobs since the stimulus passed and 3.4 million total since Obama was elected. How he attributes any jobs gains to the stimulus is the fuzziest of fuzzy math. ‘Nuff said.”

Obama’s Spending Freeze

President Obama is apparently planning to freeze a portion of federal spending for three years. The portion to be frozen is discretionary spending less spending on defense, homeland security, and veteran’s affairs. That portion of spending–about 13 percent of the overall budget–would be held to $447 billion between FY2010 and FY2012.

The chart puts the freeze in context by illustrating the recent growth in this portion of the federal budget. The data is in “budget authority,” which is the amount of new spending authorized each year. Note that a portion of that authorized spending usually splashes over into subsequent years.

The first thing to note is that the portion of the budget to be frozen grew 60 percent between 2000 and 2008, during a period of low inflation. And since this portion of spending excludes defense, homeland security, and veterans affairs, it has nothing to do with the reponse to 9/11 or various foreign wars.

Then comes 2009 and the massive “stimulus” bill, which pushed up spending on this part of the budget to $699 billion. Finally, the figure shows the freeze at $447 billion, which is 71 percent higher than the level of authorized spending in 2000.

Here’s the important point: a very large part of the 2009 spending spike of $699 billion will be sloshing forward into 2010 and later years. (As illustrated by my fancy arrow in the chart). The new CBO budget estimates (Table A-1) show that only 18 percent of authorized stimulus funding will be spent in 2009, with the rest sloshing forward.

Obama is “freezing” the budget only because he already has a large amount of cash floating around from the stimulus bill that he can spend on all his favorite big government projects in 2010 and beyond. In budget-speak, federal spending measured in “outlays” will be far from frozen.

Finally, a president’s proposals for discretionary spending beyond the current budget year are meaningless. Obama will be back with a new budget in February 2011, no doubt with a whole new set of assumptions and priorities.

Data note: chart data of budget authority from OMB, Mid-Session Review, Table S-14, and budget historical tables.

Biased Budget Reporting

I was certainly surprised to see Barack Obama propose any sort of spending freeze. Less surprising, however, is how it’s been reported.

For reasons that I admit escape me, it is apparently a law of journalism that any budget-related act will be made to look as stingy as possible. Remember this when you read the news.

Spending increases that were planned all along aren’t considered increases at all and do not make the news. Unplanned increases, those over and above the planned ones, are reported as though only the unplanned parts were increases. Large spending increases get extra praise for boldness. Reductions in the rate of spending growth are called “spending cuts.” Real though tiny cuts are described as draconian measures. We would probably have to invent a new word, something scary with reference to the intimate anatomy, if significant, across-the-board spending cuts ever arrived. Within most of our lifetimes, this has never happened.

Today’s reporting fits the pattern perfectly. The Washington Post headline proclaims, “Obama to Propose Freeze on Government Spending.” The New York Times declares, “Obama to Seek Freeze on Some Spending to Trim Deficits.” It is, we learn, “an initiative intended to signal his seriousness about cutting the budget deficit.”

Wonderful! Or stingy! Or both!

But not, you know, accurate. The details are in the fine print, and they don’t remotely live up to the headlines. The freeze applies only to discretionary spending. It doesn’t touch military or entitlement programs, and these are the large majority of the budget. It may not even be a meaningful freeze on the discretionary portion, as my colleague Dan Mitchell points out. And it’s only down in the fifth paragraph where the Times notes that “The estimated $250 billion in savings over 10 years would be less than 3 percent of the roughly $9 trillion in additional deficits the government is expected to accumulate over that time.”

In other words, today’s news is a virtual nothing with almost no likelihood of being carried through anyway. If this is “intended to signal seriousness,” I wonder what an unserious proposal would look like. I also wonder what sort of proposals we’d get from our politicians if our media reported on budget matters without its deeply ingrained bias against fiscal discipline.