Monday, September 21, 2009

What does "deficit-neutral" mean

BO has repeatedly promised that his medical insurance bill will be "deficit-neutral."

"I will not sign a plan that adds one dime to our deficits either now or in the future. Period."

This in spite of the fact that he has already added $600 billion of deficit spending for health care to his budget, calling it a "down payment" suggesting that he intends to spend a lot more in the future. I fully expect that this promise will be quickly abandoned when the bill is passed and signed. When the costs start piling up he'll just say, "We tried, but we just couldn't keep it deficit neutral. We can't let people die in the streets, so we must meet our obligations to our citizens. The problem I inherited from Bush was much worse than we though." Does anyone really believe that Obamacare will not add one dime to the deficit? And what exactly does that mean? Here's how BO said he would implement it:

"And to prove that I'm serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don't materialize."

I've been looking over everything I can find about the Max Baucus bill, and I don't find that provision in there. When Washington talks about "Spending cuts" they mean something different than what you might think. Those who remember the Federal School Lunch Program fiasco know that Democrats consider a proposal to increase spending on school lunches by six percent to be a horrific cut if someone else had proposed increasing spending by six and a half percent.

Obama's statement does not come close to being adequate to assure that his program is deficit neutral. One could argue that every dollar the government spends adds a dollar to the deficit, so long as there is a deficit. The deficit is one dollar more than it would have been if they had not spent that dollar. But being "deficit neutral" is a lower standard, meaning that new taxes levied to pay for that program cover the additional spending above what was previously being spent. So it is legitimate to use the $660 that Obama would cut from Medicare to offset additional spending for Obamacare. It is also legitimate to count the savings Obama promises from increased efficiency and reduced waste and fraud, if those savings actually materialize. But saying that "we will come forward with more spending cuts" is far too vague. It sounds as though proposing the cuts is enough, and Congress is free to not act on the proposals. He also doesn't specify what they would cut. Does it have to be a cut from medical care, or would cutting the military count?

When Obama says that he "will not sign a plan that adds one dime to our deficits", what is the baseline, and how is he determining if he is adding a dime? The 2009 deficit is going to be somewhere around $1.8 trillion, more than four times higher than ever before. Because the 2009 deficit is swollen by bailouts and one-time stimulus spending, future years deficits are expected to be less. Can Obama claim to have not added to the deficit if the 2011 deficit, with Obamacare in effect, is not more than $1.8 trillion? He could make that claim even if Obamacare increased the deficit by hundreds of billions of dollars over what it would have been without Obamacare.

Even worse, they could compare against a projected budget, and as long as the deficit stays below that amount, they could claim deficit neutrality. For instance, in 2012 they could say "We projected a deficit of $1.5 trillion for this year, and our deficit is only $1.45 trillion, so we kept our promise of not increasing the deficit." The problem is that the projection is arbitrary, and it would be easy to set it absurdly high so that they could spend huge amounts of money and still claim to be deficit neutral. This is not at all far fetched. It is how Congress routinely does business.

Politicians are really good at playing shell games with our money, and Washington math is nothing like real math. Pinning them down on exactly what they mean is important if we want any kind of fiscal accountability.

It is possible, in a few phrases, to lay out a clear criteria which would make it possible to objectively determine if Obamacare is actually accomplishing its stated goal of reducing the deficit: Medical Reform meets it's goal of being deficit neutral if total real per capita Federal spending on medical care, minus tax revenue collected for medical care, does not exceed 2009 levels.

But in all of Obama's "fleshing out the details" he never makes a specific statement which we can actually pin him down on later, when spending spins out of control. Obama is willing to play fast and loose with the definition of a "tax", even when former top Clinton advisor George Stephanopoulos and the AP both say "it is a tax," in order to claim that he is keeping his promise to not raise taxes on the middle class. What makes you think that he won't quibble over the meaning of his promise to "not sign a plan that adds one dime to our deficits, either now or in the future?"

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