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The Reid Plan: Cut $24 billion Net Direct Spending for $2.7 Trillion

Anthony Randazzo
July 27, 2011, 9:30am

The Congressional Budget Office has a score out for the competing debt ceiling increase proposals on Capitol Hill. President Obama has a stated preference for his fellow Democrat, Senate Majority Leader Harry Reid's plan. The headline CBO grab says the plan will reduce $2.2 trillion from the deficit over the next 10 years, in exchange for a $2.7 trillion increase in the debt ceiling. The plan is praised, especially because Republican Speaker of the House John Boehner's plan only cuts $850 billion according to the CBO.

But here is where the hash tag #f*ckyouwashington that became popular on Twitter last week becomes particularly poignant: the whole thing is just tricky accounting. 

First, the Reid plan will actually cut $2.2 trillion from the CBO's adjusted baseline estimate for the next 10 years. We don't have a budget for the next 10 years, in part because Congress hasn't passed one for the past two years. This is basically saying if we just kept spending levels at today's rates, the spending caps proposed by Reid would cut $2.2 trillion from that path. But our current spending levels are at historic highs that even the President has said are only temporary measures (needed to help the economy he argues). This is the equivalent of going from spending $10,000 a month on your credit card to $20,000, but then saying you'll cut back to about $15,000 in exchange for a higher credit limit.

Second, the actual, direct spending cuts in the Reid plan are $24 billion according to the CBO. That is just one percent of the proposal. And this comes from selling more rights to radio waves ($13.1 billion), cutting $75 million from graduate school loan subsidies, and slashing $11.1 billion from agriculture subsidies. Rolling back some of the government's role in education funding and agriculture are great ideas, but they are a drop in the bucket here relative to a $2.7 trillion debt ceiling increase.

Third, a majority of the Reid "savings" come from discretionary spending caps on military activities (not even the defense budget). In principle less money spent on the wars in Afghanistan and Iraq is not a bad thing. But this spending was going to get pared down anyway. For instance, at current spending levels the CBO estimates total outlays of $1.5 trillion spent on the operations in Afghanistan and Iraq. The Reid plan proposes cutting that to about $500 billion for a total "savings" of $1.044 trillion. I'm all for less money spent overseas, but we were going to be slashing this down anyway as we passed future budgets with fewer and fewer troops on the ground. (Still, if I had to pick part of this plan that I like the most, it is going after our bloated defense expenditures.)

Fourth, the majority of the remaining savings come from increased spending on enforcement measures that would hopefully cut fraud and waste winding up with a net decrease in federal outlays. CBO estimates the proposed changes would yield $13.7 billion in savings from Social Security and about $2.8 billion in savings from Medicare and Medicaid, both over the next 10 years. Seriously? That was the best the Senate could come up with over the last six months?

Somewhat comically, the Reid plan also includes increasing the IRS budget so they can collect more tax revenues, but CBO concludes there is no assurance the IRS will actually use the extra money for better enforcement, so they leave it out. 

Finally, the plan wants $2.7 trillion in increased ability for debt. At current rates that gets us roughly to about 2013 before we hit the ceiling again. But the "cuts" are from fiscal year 2012 to 2021. Calling that fiscal restraint in any sense of the idea is bogus. 

If President Obama were serious about his desire for cutting as much as $4 trillion from the budget—real cuts that include entitlement reform—then he should put himself on the line and support a debt ceiling increase that just lasts six months so that Congress has to deal with this next spring during campaign season and we can see what our elected officials would really do about spending, not just hear more promises. For Senator Reid's part, this is a disappointingly weak plan particularly after the months of debate we've been having.

Click here for my comments on Boehner's proposal.

Also see the CBO score on Boehner's plan and Reid's plan directly.


Anthony Randazzo is Director of Economic Research


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