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.

Budgetary Effect of the Budget Deal
Category Ten-Year Cost/Savings (-)
Defense Sequester Relief $39 billion
Non-Defense Sequester Relief $39 billion
War Spending Increase* $31 billion
Medicare Premium Fix $8 billion
Interest Cost $36 billion
Total Gross Cost $154 billion
Extend Mandatory Sequester by One Year -$14 billion
Sell from Strategic Petroleum Reserve -$5 billion
Increase PBGC Premiums -$5 billion
Make Up Medicare Premium Fix -$8 billion
Repeal Health Insurance Auto-Enrollment -$8 billion
Equalize Payments for Similar Services -$9 billion
Extend Medicaid Inflation Rebate to Generic Drugs -$1 billion
Enact Judiciary Savings -$4 billion
Auction Spectrum -$4 billion
Change Partnership Audit Rules -$11 billion
Interest Savings -$9 billion
Total Legitimate Offsets -$78 billion
Shift PBGC Premium Payments -$3 billion
Extend Pension Smoothing -$8 billion
Double-Count Social Security Savings -$4 billion
Change Crop Insurance Agreements (Agreed to Be Repealed) -$3 billion
Interest Savings -$2 billion
Total Gimmicks and Double-Counting -$20 billion
Net Cost of the Bill $56 billion
Net Cost Excluding Gimmicks $76 billion

Source: CBO, CRFB calculations

Numbers may not add due to rounding.

*Measured relative to the Pentagon's FY 2016 budget request
assumed in both 2016 and 2017

This means only half of the bill is paid for with real honest savings over the next decade. Even excluding interest costs, only 60% of the bill is. That's better than nothing but falls far short of any definition of fiscal responsibility.

Note: This blog has been updated for the latest CBO score of the bill (H.R. 1314) on October 28.