Tax Policy Center president Donald Marron has a brief in Tax Notes that shows that spending on tax expenditures are higher than the commonly reported $1.1 trillion figure. As Treasury does not release the figures of the cost of all tax expenditures, they are often estimated by summing the individual and corporate tax preferences. However, this method excludes other provisions that reduce total tax revenues such as payroll or excise tax expenditures.

In 2012, individual income tax expenditures will reduce tax receipts by $942 billion and corporate tax expenditures by $151 billion. This gets you to the commonly cited figure of around $1.1 trillion. But when you include the outlay effects of refundable tax credits--mostly from the earned income tax credit and the child tax credit--that adds another $91 billion. In addition, the exclusion for employer-provided health insurance also applies to the payroll tax, reducing that revenue by $109 billion. Other credits against excise taxes, mainly for alcohol fuels, add another $4 billion. Including these tax expenditure figures yields a total of $1.3 trillion, a more comprehensive estimate of how much tax expenditures cost the country.

Furthermore, using these projections, the total size of tax expenditures will grow to nearly $1.8 trillion by 2017.

Still, this estimate is caveated by the fact that the sum is not necessarily equal to the parts; in other words, simply repealing all these tax expenditures would not save $1.3 trillion this year. Many of these preferences interact with each other and other provisions of the tax code. As Marron explains:

There are several reasons to believe that the potential revenue gains from rolling back tax preferences are less than the headline estimates. One reason is that the estimates are static—they measure the taxes people save today but do not account for the various ways that people might react if a preference were reduced or eliminated; those reactions may reduce potential revenues. Second, most reforms would phase out such preferences rather than eliminate them immediately. That too reduces potential revenues, at least over the next decade or so.

In addition, tax reform plans that lower marginal tax rates and eliminate or reduce tax expenditures cannot rely on these estimates, since reducing marginal rates will also reduce the value of tax expenditures. Therefore, those trying to offset lower marginal rates by repealing tax expenditures will have less than $1.3 trillion available to cut. Still, you can see by these estimates that tax expenditures are an enormous part of the budget.

What the Bunny Left Behind – We’ve given up on giving things up for Lent, Passover will be passing, and the Easter Bunny has hopped into the pastel sunset. Yet, plenty of tasty goodies have been left behind. Likewise, legislators left plenty in their wake as they rushed home for the holidays, though nothing very sweet. Congress was out last week and remains in recess this week. Lawmakers will then return to some unfinished fiscal business. Easter eggs are wondrous things – colorful and full of surprises. They can be found in unexpected places. You never know what you will find inside the plastic shell until you open it up. But sometimes what you find is disappointing – candy that you don’t like, or in the most disheartening cases, nothing at all. The hunt is often the best part – the exhilaration of finding hidden treasure where no one else dared to look. We are currently in the middle of such a hunt. Perhaps we will discover that the answers to our fiscal problems aren’t hidden at all…that they are right in front of us. Hidden in clear sight, they simply are not colorfully wrapped. Maybe we will find that by putting our eggs together, we can uncover what we are looking for.

Budget Still Isn’t Hatched – The House passed the FY 2013 budget resolution drafted by House Budget Committee Chair Paul Ryan (R-WI) on a party-line vote just before departing. A bipartisan alternative sponsored by Reps. Jim Cooper (D-TN) and Steve LaTourette (R-OH) that was based on the Simpson-Bowles proposal was defeated, but 38 courageous lawmakers supported the bill and the effort achieved a lot of outside support. Several other alternatives were also considered and rejected. Meanwhile, the Senate is not expected to approve of a budget blueprint, even though Senate Budget Committee Chair Kent Conrad (D-ND) says his committee will mark up a budget resolution next week.

Rolling off a Fiscal Cliff? – A confluence of events at the end of this year and beginning of 2013 – including the expiration of the 2001/2003/2010 tax cuts, reaching the statutory debt limit, and triggering the sequester – threaten the perfect fiscal storm. Yet, simply proscribing or delaying these actions would cause the national debt to mount to catastrophic heights. CRFB examined what Federal Reserve Chair Ben Bernanke calls the “fiscal cliff” and how to forge a sensible path in a recent paper. We also previously looked at how large-scale deficit reduction could be done in a smart way in a blog post.

Presidential Candidates Hunt for Traction – With former Massachusetts Governor Mitt Romney on track to be the Republican presidential nominee, the general election campaign is beginning to take shape. President Obama sought to make a contrast with his likely foe in a speech that was highly critical of the House Republican budget, which Romney embraced, calling it a "Trojan Horse" and a "prescription for decline." Meanwhile, a Gallup Poll found that the federal budget and the national debt is a top concern for voters. These developments illustrate why CRFB’s U.S. Budget Watch project is so important, as it assesses the budgetary impact of the candidates’ policy proposals and provides principles for conducting a fiscal debate that advances an informed and constructive discussion of the issue and possible solutions. Candidates need to seriously debate the debt during this campaign.

Don’t Put All Your Eggs in the Buffett Rule Basket – The Senate will vote next week on legislation sponsored by Sen. Sheldon Whitehouse (S. 2230) to implement the "Buffett Rule," which would ensure that taxpayers making over $1 million per year would pay at least a 30 percent effective tax rate. The bill also expresses the sense of the Senate that Congress should enact tax reform that makes the tax code more simple and fair by addressing tax loopholes. The bill is estimated by the Joint Committee on Taxation to increase revenue by $47 billion over ten years relative to current law. The vote, just in time for Tax Day, should bring needed attention to tax reform, but more fundamental reform of the tax code will be required. There are plenty of ideas for how addressing tax expenditures can be a part of fundamental tax reform, see here, here and here for a few.

First Half Deficit at $777 Billion – The Congressional Budget Office last week pegged the federal budget deficit for the first six months of fiscal year 2012 at $777 billion, somewhat lower than the $829 billion deficit at this point last year and on course to hit the $1.17 trillion deficit for FY 2012 projected earlier this year by CBO.

Egging on a Debt Reduction Plan – CRFB’s National Debt Tour recently hit New York City, where former Fiscal Commission co-chairs Alan Simpson and Erskine Bowles joined New York City Mayor Michael Bloomberg at a Wall Street Journal breakfast for business leaders. Simpson and Bowles then appeared on the Charlie Rose Show. The debt tour previously visited Boston, Massachusetts and hits Roanoke, Virginia next week; future stops will also include Seattle, Washington and Dallas, Texas among many other places. When it comes to addressing deficits and debt in a way that strengthens the economy, people are looking for leadership and solutions from Washington, but all they see is partisanship and soundbites. This cross-country tour will bring people together to confront this major challenge to our future. The National Debt Tour will inform Americans about what’s at stake, engage them in discussing solutions, and empower them to demand action from their leaders towards a "Go Big" plan to beat the debt.

Wyoming Calls for a Fiscal Plan from DC – One might not expect Wyoming to be the place that sparks action in Washington, DC for a comprehensive debt reduction plan, but that may well be the case. The Wyoming state legislature overwhelmingly approved of a resolution urging "the United States Congress to pass a comprehensive and aggressive budget resolution, based on the National Commission for Fiscal Responsibility’s The Moment of Truth plan, to address our nation’s deficit spending and national debt." Let’s hope other states follow suit.

Key Upcoming Dates (all times ET)

April 13

• Dept. of Labor's Bureau of Labor Statistics releases March 2012 Consumer Price Index (CPI) data. 

April 17

• Tax Day! Federal income tax returns are due.

April 19

• House Subcommittee on Economic Development, Public Buildings, and Emergency Management hearing: "GSA's Squandering of Taxpayer Dollars: A Pattern of Mismanagement, Excess, and Waste" 

April 24

• Presidential contests in Connecticut, Delaware, New York, Pennsylvania, and Rhode Island

April 27

• US Dept. of Commerce's Bureau of Economic Analysis releases its advance estimate of 2012 first quarter GDP growth.

May 4

• Dept. of Labor's Bureau of Labor Statistics releases April 2012 employment data.

May 8

• Presidential contests in Indiana, North Carolina, and West Virginia

May 15

• Presidential contests in Nebraska and Oregon
• Dept. of Labor's Bureau of Labor Statistics releases April 2012 Consumer Price Index (CPI) data.

May 22

• Presidential contests in Arkansas and Kentucky

May 29

• Presidential primary in Texas

May 31

• US Dept. of Commerce's Bureau of Economic Analysis releases its second estimate of 2012 first quarter GDP growth.

As readers of The Bottom Line and our releases will know, CRFB strives to compare as many plans as possible on a similar basis so that policymakers, experts, and the public can truly see the differences between competing proposals. We do this because it's all too easy for people to get confused about various baselines and actual new savings from proposals.

With that in mind, the President made three claims yesterday about how his budget compares to the Simpson-Bowles recommendations, which warrant some additional clarification. Here's what the President said:

"[the Fiscal Commission] proposed about $600 billion more in revenue and about $600 billion more in defense cuts than I proposed in my own budget... By the beginning of the next decade, [my budget] achieves the same amount of annual health savings as the plan proposed by Simpson-Bowles -- the Simpson-Bowles commission, and it does so by making changes that people in my party haven’t always been comfortable with."

On revenues, the President is basically right. Although the Fiscal Commission called for about $1 trillion in new revenue from tax reform (and small amounts of revenue from other sources), it did so against a baseline that assumed the upper-income tax cuts were going to be allowed to expire at the end of 2010. Instead, the President and members of Congress extended those tax cuts, which means that going to the original Simpson-Bowles numbers would result in more than $600 billion of higher net revenue and $400 billion of higher gross revenue than the President through 2021.

On defense, on the other hand, the President's numbers are somewhat off the mark. The original Fiscal Commission report cut and grew security and non-security spending equally off of 2010 discretionary numbers, whereas subsequent discretionary reductions have focused primarily on non-security spending. As a result, going back to the Fiscal Commission's numbers would mean about $600 billion in security reductions relative to the BCA (through 2022, and extrapolating both out past when the "firewalls" expire). However, it is important to note that security is a much broader category than just defense; it includes homeland security, the State Department, Veterans Affairs, and certain programs within the Energy Department as well. If we assumed the security cuts were allocated equally between among the security agencies, defense cuts under the original Fiscal Commission numbers would be less than $450 billion through 2022, not $600 billion. And only $80 billion of that would come in years where "firewalls" mandated that policymakers find savings from both sides of the discretionary budget (through 2015).

On health care, lastly, the President claims his budget would save as much as the Fiscal Commission by the beginning of next decade. In reality, the health care savings in the Fiscal Commission are much more significant. Looking at 2020, the Fiscal Commission saves nearly $70 billion from health care, while the President saves less than $50 billion. To make their claim work, it appears that the President is including the costs of repealing the CLASS Act (though there is currently no cost, since the Administration has decided not to implement it) and excluding three policies which would not directly reduce Medicare or Medicaid spending, but rather indirectly save money in these programs while also reducing spending on federal civilian and military health benefits and the health system more broadly.

Those reforms include tort reform ($3 billion in 2020), TRICARE reforms ($6 billion in 2020), and FEHB reforms ($3 billion in 2020). Taking those savings out, while still charging the Commission for the CLASS Act costs, puts the President's own health care savings estimates of $50 billion ($3 billion more than CBO's estimates, FYI) in line with the Commission's. 

* * * *

The other week, CRFB released a comparison table of several prominent budget proposals. Since then, however, Rep. Paul Ryan has released his latest proposals, CBO has estimated the President's budget, and Representatives Jim Cooper (D-TN) and Steven LaTourette have put forward recommendations based off of the Fiscal Commission's framework. In short, it's time for an updated comparison.

^{Note: Numbers may not add due to significant rounding. Estimates calculated off of a current policy baseline, and through FY2021.
**Assumed to be roughly equal to the discretionary caps put in place in the Budget Control Act.
#Excludes $87 billion from CLASS Act repeal.
~Savings come from across the federal budget, including about $40 billion from revenues, $90 billion from Social Security, and $70 billion from other mandatory programs.}

Note: Estimates for President's Budget updated to reflect more recent figures in the Mid-Session Review.

Via Wonkblog, Sarah Kliff reports on an initiative by nine medical specialty groups to identify procedures that they find to be either unnecessary or unlikely to improve patient outcomes. The initiative, called "Choosing Wisely" tasked these nine groups to come up with five procedures each, for a total of 45 (the list is here). 

As health care costs throughout the system have continued to rise, there has been greater emphasis placed on figuring out what is effective treatment and what is unnecessary, wasteful, or perhaps even harmful to the patient. Choosing Wisely is a start in that effort and is doing its best (along with other groups) to push these guidelines out into the public and to get doctors to pay attention.

The debate is an important one to be having, and one that could be helped by policy changes. For example, pushing forward on payment reforms that shift away from fee-for-service will have doctors thinking more carefully about the benefits relative to the costs of different procedures. On the other side, Medicare cost-sharing could be changed to better reflect the value of different services and to discourage wasteful medical spending.

There are many changes we can make to federal health care programs themselves in order to hold down their growth. At the same time, though, we should be pursuing reforms that will bring down costs in the whole system by squeezing out the inefficiencies that currently exist.

With a number of budget resolutions coming out, honest budgeting might be too much to ask for. As we took a look at the Republican (Ryan) and Democratic (Van Hollen) budgets, in fact, we found a number of gimmicks. Some of the major ones include:

• Doc Fix Gimmick: The House Republican budget creates what is known as a "deficit-neutral reserve fund" for the doc fix. Essentially, this is budget resolution-speak for having placeholder savings to offset the cost of the doc fix. This magic asterisk saves the budget from $271 billion of additional cost over ten years. There is no hint as to where these savings might come from, nor does the budget count the costs of enacting a doc fix. Although the House Democratic budget does include the cost of the doc fix in their numbers, they claim to pay for it with war savings, which brings us to our next gimmick described below.
• War Spending Gimmick: In the past, we've criticized the use of the "war gimmick," where policy makers take savings from a war drawdown already in place and use it to pay for new priorities. When the President's budget did this, CRFB President Maya MacGuineas reacted by saying:

Drawing down spending on wars that were already set to wind down and that were deficit financed in the first place should not be considered savings. When you finish college, you don’t suddenly have thousands of dollars a year to spend elsewhere – in fact, you have to find a way to pay back your loans.

The House Democratic budget goes further than this. It eliminates war spending after 2014--whereas the President spends $44 billion per year beginning in 2014--even as it claims to reflect the President's policies. This means that either they support paying for the war out of the regular budget -- which is a responsible policy if true but means they are proposing $350 billion of spending cuts without admitting so or including a plan to achieve them -- or else they are reverting to a Bush-era practice of failing to budget for war spending which they fully expect will occur.

• Sequester Gimmick: The Republican budget claims to replace the sequester with savings from reconciliation instructions to committees. As they claim, "There is bipartisan agreement on the devastation to America’s national security that would result if these deep cuts go into effect...this budget reprioritizes sequester savings." As we've explained, this statement is true for FY 2013: the budget replaces most of the sequester in that year with spending cuts required from other Congressional committees. However, the budget does nothing to address the sequester after 2013; instead, the budget keeps it in place and counts it toward their low debt numbers. As we've explained:

On the mandatory side, the sequester is allowed to cut spending across-the-board to various programs. On the discretionary side, the budget retains the overall levels of the sequester but keeps them classified as "allowances" -- which is budget speak for unspecified savings. In this way, it allows the apparent defense numbers to substantially exceed sequester levels (and BCA levels as well), while counting all of the sequester savings on the non-defense side.

If you remove the sequester entirely, it would add $900 billion of additional spending through 2022.

Getting our debt under control will require honest budgeting. In the meantime, we'll keep calling out gimmicks as we see them.