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The Numbers Behind President's Deficit Reduction Plan


Demian Brady
November 5, 2012

Last week, I posted an article about the spending proposals that have been highlighted by the Obama re-election campaign on its website and in a policy brochure that was released to the media in late October. Dollar figures for his proposals were drawn from the Administration's budget and related legislation that has been scored and included in NTU Foundation's BillTally study.

As promised, here is a look at the President's deficit reduction plan.

In His Own Words

Here is how the Obama campaign has described the plan:

"By eliminating special loopholes and tax breaks that benefit big business and the wealthiest – as part of a balanced deficit reduction plan that also cuts spending we can't afford – we can grow our economy without burdening our children and grandchildren with debt." http://images.politico.com/global/2012/10/jobs_plan_booklet1_part1.html

"President Obama's plan reduces the deficit by more than $4 trillion over the next decade, including $1 trillion in spending cuts he signed into law last summer, and cutting $2.50 in spending for every $1 in additional revenue from the wealthiest families and closing corporate loopholes." http://images.politico.com/global/2012/10/jobs_plan_booklet1_part4.html

"President Obama has put forward a specific, balanced plan of spending cuts and revenue increases that reduce the deficit by more than $4 trillion over the next decade, including $1 trillion in spending cuts he signed into law last summer as part of a deal with congressional Republicans" http://www.barackobama.com/taxes

The paragraph above links to an image of a chart, that states, "Obama's Balanced Approach: More Than $4 Trillion in Deficit Reduction, After investing in jobs and economic growth including $2 trillion already enacted into law[.]"

The chart also lists the following 10-year deficit reduction totals:

  • $590 billion from "Health & other mandatory initiatives";
  • $850 billion from "Savings from ending Iraq & Afghanistan wars";
  • $1,910 billion from "Closing corporate loopholes and tax increases on high income earners";
  • $70 billion from "Other";
  • $800 billion from "Debt Service"; and
  • $1,780 billion from "Spending cuts already enacted."

This is as much detail as the campaign provides on its website, and it includes a mix of already enacted laws, current policy, new tax hikes, and new spending cuts. It also includes an estimate of the resulting reduced interest payments on the national debt.

In our candidate platform analyses, NTUF attempts to provide cost information on new proposals that affect outlays, and NTUF does not count any savings in interest on the debt that might result from program cuts. Instead, NTUF takes into account only the specific programmatic savings.

Previously Enacted Reductions

$1.78 trillion comes from "spending cuts already enacted." I assume that the bulk of this amount comes from the Budget Control Act that was enacted in August 2011. This law placed limits on spending through discretionary spending caps and includes provisions for additional spending cuts in the amount of $1.2 trillion over ten years. The remaining amounts probably include the $741 billion of direct spending cuts that were enacted in the Patient's Protection and Affordable Care Act. The largest cuts were to Medicare for fee-for-service payments and Medicare and Medicaid "disproportionate share hospital" payments to certain hospitals with a large share of low-income and uninsured patients.

The second item on the chart credits $850 billion from "savings from ending Iraq & Afghanistan wars." I'm not exactly sure how that number was calculated: The President's FY 2013 Budget requested $96.7 billion for what it labels "Overseas Contingency Operations," i.e., spending related to the military operations in Iraq and Afghanistan. The Budget also called for $44.2 billion per year for Fiscal Years 2014 to 2022 (Budget of the U.S. Government, Fiscal Year 2013, Summary Tables, page 239).

Moreover, this isn't new policy. All but a small force of troops were already removed from Iraq by early 2011. And in May, 2012, President Obama said, "Last year, we removed 10,000 U.S. troops from Afghanistan. Another 23,000 will leave by the end of the summer. After that, reductions will continue at a steady pace, with more and more of our troops coming home. And as our coalition agreed, by the end of 2014 the Afghans will be fully responsible for the security of their country."

New Proposals for Deficit Reduction

The largest amount comes from $1.9 trillion in new revenues: "Closing corporate loopholes and tax increases on high income earners." And remaining is $590 billion for "health & other mandatory initiatives" and $70 billion for "other." The campaign's website does not specify where these cuts would be made, but I assume this is a reference to the mandatory spending proposals introduced in the President's FY 2013 budget, and updated in the Fiscal Year 2013 Midsession Review: Budget of the U.S. Government (MSR).

The MSR notes, "… [T]o build on the work done to reduce health care costs through the Affordable Care Act, the President proposes $326 billion in additional reforms to Medicare, Medicaid, and other health programs over 10 years. Third, he puts forward $254 billion in additional mandatory savings over the next decade." These figures add up to $580 billion, in the ballpark of the campaign's figure.

The specific proposals are included, beginning on page 44, in Table S-10, Mandatory and Receipt Proposals. The table projects $237 billion in cuts to Medicare providers, $35 billion in savings from "structural reform," and $50 billion from enacting Medicaid reforms.

It is hard to ferret out what could be included under the $70 billion in savings listed as "other." My guess is that about $30 billion of this would be from savings in agricultural producer subsidies. The complete list of taxes, reductions, and fee increases are available in Table S-10 of the MSR.

Bottom Line

A lot of analysts have questioned how the President's deficit reduction plan adds up. With the lack of specificity, it has been difficult to figure out exactly what he is talking about. I am assuming that the campaign was looking for nice round figures to highlight and that those figures are rooted in the Administration's proposed budget.

Despite this $4 trillion deficit reduction plan, the President's own latest budget projection in the MSR shows outlays exceeding receipts in each year over the next decade. And this includes perhaps rosy economic estimates that forecast an average annual growth of GDP by 3.14 percent. Without that growth, the amount of tax receipts will be lower than the Administration currently expects. In that event, the persistent spending problem will loom even larger.

 

See here for a detailed list of the President's spending proposals.

See here for a round up of the campaign platform studies conducted by NTUF this year, including Mitt Romney's agenda.


 

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