It’s one of the oldest tricks in the book.

Politicians like to say they are “cutting the budget.” But budget cutting can only be understood in context. In budget-speak, there is a “baseline” against which budget decisions are measured. Normally, the “baseline” assumes current law and policy. But if you want to look like you are cutting the budget without really doing so, the answer is to inflate the “baseline” so that the cut is measured against an artificially high target.

President Bill Clinton did exactly that in 1993. In 1990, President George H. W. Bush had negotiated hard caps on appropriations spending that lasted through 1995. The “baseline” Congress used in 1992 assumed these caps held because a breach would trigger across-the-board cuts. In the first year of his presidency, Clinton wanted to look like he was cutting one dollar in spending for every dollar of taxes he was increasing, even though he wasn’t willing to take the heat for real cuts. The solution? He redefined the baseline to assume the caps were no longer operative, announced his support for keeping what was already the law of the land, and claimed a sizeable spending “cut” as his own.

President Barack Obama may be about to do the same thing.

Recently, House Speaker Nancy Pelosi and House Budget Committee Chairman John Spratt asked the Congressional Budget Office (CBO) to provide estimate of the federal budget deficit for the coming decade using assumptions not normally included in the baseline, including continuation of several laws that are set to expire.

CBO’s response is startling, to say the least.

Under the pre-stimulus baseline, CBO projected that the federal budget deficit would total $4.3 trillion between 2009 and 2019.

However, using assumptions specified by Pelosi and Spratt, CBO provided an alternative projection scenario in which the deficit would total $12.9 trillion over the same period—a whopping $8.6 trillion difference.

In this alternative scenario, defense spending is assumed to stay inflated at current war-time levels for the entire decade ($1.3 trillion); Medicare physicians fees are assumed to rise 1 percent every year instead of being cut ($0.3 trillion); and other spending is inflated based on Congress’s 2009 appropriations spending spree ($0.1 billion). The alternative scenario also assumes the 2001 and 2003 Bush tax cuts are permanent, as is the 2007 fix for the Alternative Minimum Tax.

Redefining the budget baseline in this manner would provide the Obama team with several advantages. Pulling out of Iraq would suddenly save much more than previously thought because the “baseline” would assume high levels of war funding well past the point anyone now thinks reasonably plausible. Obama’s Medicare reforms would appear to save more because they would be measured against an assumption of growing physician fee payments. And, if Obama is successful in returning to pre-Bush tax rates, he could use some of the revenue to pay for his initiatives instead of deficit reduction. Today’s baseline devotes all of that revenue to deficit cutting beyond 2010.

Tuesday night, the President used the language of tight-fisted management. His team, he said, is working to root out waste, eliminate efficiency, and ensure every dollar is spent wisely.

But he never really promised to get the deficit under control. All he promised was a cut to half of today’s level. But today’s level is a record, driven by a severe contraction. If the economy recovers, the deficit is going to fall rapidly in the normal course of events anyway, as CBO’s current baseline shows.

President Obama and his team are going to call all of these maneuvers honest budgeting. But what’s really going on is a sophisticated campaign to dress up the massive budget deficits they plan to run as fiscal conservatism.

[Cross-posted at the Corner]


February 26, 2009