Still Budgeting Through Footnotes in FY 2011 FY2011 Budget Series

A few months ago, we pointed out that the Administration was cheating in its Mid-Session Review budget baseline. Essentially it was taking policies which President Obama had signed into law as temporary, under the stimulus bill, and assuming them as permanent. The implication being that, if the policies were a part of the baseline, they wouldn't need to be paid for when enacted.

Well, the Administration is at it again in their FY 2011 budget submission, but this time they are doing a better job of hiding it.

But let's start from the beginning:

Traditionally, proposed policy changes are measured from what is called a "current law" baseline. This baseline essentially looks at the law, the way it is written, and attempts to project tax and spending paths over the next decade. Budget scorers then measure the magnitude of policy changes by estimating how far they will cause taxes and/or spending (and deficits) to diverge from that baseline.

The Administration has argued, though, that this current law baseline is unfair. It assumes all the Bush tax cuts will suddenly expire at the end of 2010 -- even though this would result in significantly higher taxes in 2011; it assumes policy makers won't prevent the Alternative Minimum Tax (AMT) from hitting middle-class tax payers -- even though they have been for years; and it assumes that, a month from now, Medicare will pay physicians 21 percent less than it does now -- even though no politician would let this happen.

Because of this, the Administration says it should be able to measure its policies off of a "current policy" baseline. We disagree; if President Obama wants to extend the Bush tax cuts -- the same ones which he criticized the Bush Administration for not paying for -- he should have to offset them, or else fess up to using them to increase our debt.

But let's accept, for the sake of argument, that the Administration should be allowed to budget from a current policy baseline. Even in that case, they are cheating.

The Administration is taking two tax provisions from the 2009 stimulus bill -- expansions of the child tax credit and the EITC -- and claiming them as part of the "current policy" Bush tax cuts. And they are doing something similar for Pell grants: assuming that they will receive sufficient funding to pay out the maximum grant level set in the stimulus bill.

The Administration didn't inherit these policies, they created them. And worse, still, they created them as explicitly temporary, under a stimulus bill which they claimed was meant only to help bring us out of this recession.

Yet the White House wants to continue these policies, and they don't want to pay for them. So what do they do? They hide these policies in their baseline, in the hopes that they won't have to. With the Pell Grants, at least they admit to this in their "Bridge From Budget Enforcement Act Baseline to Baseline Projection of Current Policy" (Table S-7). For the tax cuts, as Bob Williams of TPC points out, they don't show this until "footnote 5 on page 170 of Analytical Perspectives."

So how much money is involved here? Well, putting these measures into the baseline makes the President's tax cuts for families appear to cost $143 billion over ten years, when they actually cost $241 (excluding the Bush tax cuts). And it makes his Pell Grants expansion appear to cost $69 billion, when it actually costs $187 billion.

  2011 2012 2013 2014 2015 2011-2015 2011-2020
EITC * $2 $2 $2 $2 $7 $15
Child Tax Credit * $10 $9 $9 $9 $38 $83
Pell Grants $9 $12 $12 $12 $12 $56 $118
Interest * * $2 $3 $4 $9 $50
Total $9 $24 $25
$26 $27 $111 $266

Over ten years, we estimate these baseline adjustments to cost about $266 billion, including interest. That's nearly as much as the Administration saves from its 3-year non-security discretionary spending freeze (including interest savings). It is actually slightly more over five years.

Of course, at the end of the day, this $25 - $30 billion a year isn't going to break the budget. But it's a significant chunk of change. And if the Administration is really going to get serious about putting our fiscal house in order, an honest budget would be good place to start.

Read Further Analysis of the Budget Here

Big Bureaucracy

There is no sane person who would defend expansion of the Earned Income Credit and Pell Grants. The economists have stand up against that travesty. We already pay enough welfare. Politicians have no guts to do it. They think they are cool throwing money in the air for the crowds. They think nobody will get hurt if they repay a friend or two with a million or two. Common, stop the expansion of EIC and the fake porkulus bills! What is left from TARP and Stimulus got to go back to reduce the deficits.

Greetings! Ellie from http://www.bigbureaucracy.com/

Overreach

I'm an economist, not insane, and yet I find the expansion of the EITC and child credits (and Pell grants for that matter) in ARRA to have been just fine.  I think some may take mere partisan political posturing as a valid substitute for economic analysis.  It is not. 

 

As for the matter at hand, while enacted through ARRA, the EITC and child care credit changes were in fact amendments to EGTRRA and JGTRRA, and it would seem to me proper for them to be treated as parts of those bills, just as amendments to them made prior to 2009 would have been.  As the footnotes make quite clear, it is true that the current administration was responsible for these changes, but the treatment in Analytical Perspectives seems more sensible as is than to include them as part of ARRA and then draft the more befogging footnote that would have been necessary to tie them back to 2001/2003. 

It's not the policy, its the principle

If Obama wants to renew these programs, shouldn't he have to pay for them? He says he shouldn't have to pay for Bush's policies, but that he should pay for his own. The point is, if he puts it in the baseline, it is a way to avoid paying for it. Even though it is a policy change!

Big Bureaucracy

I hope you are an economist who pays his/her taxes, cause we are going to need every dime of it. We already have welfare program. I don't understand why we keep sending checks with thousands of dollars to people who don't pay federal taxes and call that a refund. Expanding the EITC welfare program in the time when all the big social programs like Medicare and SS are on the verge of insolvency is insane. It may be fine in some elite la-la land. It is just not common sense.

Nothing personal! Ellie from http://www.bigbureaucracy.com/

Budgeting legerdemain

I appreciate the fact that how programs are accounted for in a budget can make a difference on how a budget looks on paper.  The fact remains that government spending is out of control and the current crop of elected officials do not seem to have the stomach to make systemic changes to fix our long term problems.

 

We need a constitutional amendment to put a limit on federal debt.  Then no matter what budgeting sleight of hand they try the credit limit will end the trickery.

 

fbonnell@gmail.com

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