NCPA - National Center for Policy Analysis

THE MYTHICAL "$2 TRILLION IN SAVINGS"

March 23, 2009

During his recent address to a joint session of Congress, President Obama previewed his budget by asserting that the Administration has "already identified $2 trillion in savings over the next decade."  This is simply not true, says Brian M. Riedl a researcher with the Heritage Foundation.

The President's budget:

  • Increases spending by $1 trillion over the next decade, which he attempts to offset by reclassifying as "savings" $1.4 trillion in tax increases and $1.5 trillion in reduced spending in Iraq.
  • However, gov­ernment savings have always referred to spending cuts that save taxpayer dollars, not tax increases that feed the government.
  • Furthermore, the Iraq "sav­ings" are measured against an implausible spending baseline that assumes a permanent $180 billion bud­get for the global war on terrorism, without any troop withdrawals through 2019.
  • This is the equiv­alent of a family deciding to "save" $10,000 by first assuming an expensive vacation and then not taking it.
  • Without these false savings, only the $1 trillion spending hike remains, and that does not account for the extra $250 billion proposed for another round of financial bailouts in the current fiscal year.

Despite the claimed savings, this budget undeni­ably expands government:

  • Before the recession, rev­enues were 18 percent of gross domestic product (GDP) and spending was 20 percent.
  • After the recession, President Obama would maintain revenues slightly above 19 percent of GDP and spending at over 22 percent.
  • Thus, new tax revenues would finance new spending, rather than deficit reduction.
  • President Obama's structural bud­get deficit would exceed President Bush's.

The President also calls for bringing back the PAYGO (pay-as-you-go) statute, which existed from 1991 through 2002.  Under this law, if the sum of a given year's entitlement or tax legislation expanded the budget deficit, an automatic across-the-board cut ("seques­tration") in entitlement spending would be trig­gered at the end of the year.  The President's PAYGO proposal lacks credibility because his own budget blueprint would violate PAYGO by $3.4 trillion over 10 years, explains Riedl.

This disconnect between PAYGO rhetoric and reality is nothing new, says Riedl:

  • Congress violated the 1991- 2002 PAYGO law by more than $700 billion and then enacted legislation cancelling every single sequestration that would have enforced the law.
  • Although Congress created its own PAYGO rule in 2007, it has waived it several times at a cost of $600 billion.

Conse­quently, the President's PAYGO pro­posal should be considered a hollow gimmick that will be bypassed any time it proves inconvenient, says Riedl.

Source: Brian M. Riedl, "The Obama Budget: Spending, Taxes, and Doubling the National Debt," Heritage Foundation, Backgrounder No. 2249, March 16, 2009.

 

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