Behind closed doors, congressional leaders and the White House are discussing budget savings to tie to the upcoming vote on the federal debt limit. Republicans have promised that spending cuts must be at least as large as the debt-increase amount. Thus, if the debt limit is increased by $2 trillion to get the government through the end of 2012, policymakers need to agree on $2 trillion in cuts, probably measured over 10 years.
However, I’m getting very suspicious that party leaders will deliver phony “cuts,” not actual terminations in programs or reductions in entitlements. Looking at Congressional Budget Office projections, it is fairly easy to come up with $2 trillion in “savings” without actually cutting anything.
Figure 1 shows 10-year “savings” of $1 trillion in Iraq and Afghanistan war costs. The top line is the CBO baseline, against which “cuts” are officially measured. To construct the baseline, the CBO takes current spending and increases it over time by inflation. But nobody expects war spending to continue rising like that. Rather, spending is supposed to fall in coming years as troops are withdrawn.
Thus, the bottom line in the chart is the more realistic troop-withdrawal spending path used in both the Paul Ryan House budget plan and President Obama’s budget. This spending path produces official “savings” of $1 trillion over 10 years, but it’s more of an accounting artifact than real savings.