Budget Deal Truly Offsets Only Half Its Cost

Lawmakers are currently considering a budget deal that would increase appropriated spending, suspend the debt limit until March 2017, reallocate revenue to the Social Security Disability Insurance trust fund, and avoid a spike in some Medicare premiums. Although this bill is being hailed as a fiscally responsible sequester replacement bill, we estimate that when interest is added and gimmicks are removed, only half of the bill's cost is truly paid for.

The legislation includes about $80 billion of direct sequester relief and another $8 billion of Medicare premium relief. But when you include the additional $31 billion increase in war spending (a gimmick that lets policymakers backfill discretionary spending without offsets) and $36 billion of interest costs, the total cost of the bill rises to $154 billion.

Of this $154 billion, about $78 billion is paid for honestly: through a combination of Medicare reforms, reductions in farm subsidies, increases in PBGC premiums, asset sales, tax compliance measures, and other changes (plus the subsequent interest savings). The legislation also includes $20 billion of phony or double-counted savings, mainly from pension smoothing and other timing gimmicks but also from $3 billion of crop insurance savings that lawmakers have promised to repeal later. And the remaining $56 billion of the legislation – mostly the war spending increase and interest costs – is not paid for at all.