$4 Trillion in Exaggerated Savings

Washington Post | May 20, 2009

On two separate issues -- health-care and the budget -- the president has promised savings of $2 trillion. A total of $4 trillion dollars -- now that's real money. Unfortunately, the claims are completely exaggerated.

First, take health care. Recently, a collection of industry groups came to Washington for a meeting and photo-op with the president. News headlines trumpeted their pledge to save $2 trillion over the next decade -- headlines that were not surprising given that President Obama said, "over the next 10 years -- from 2010 to 2019 -- they are pledging to cut the rate of growth of national health care spending by 1.5 percentage point each year -- an amount that's equal to over $2 trillion. Two trillion dollars."

Turns out that's not what the groups said at all. In their letter to Obama, they promised to "do our part to achieve your Administration's goal of decreasing by 1.5 percentage points annual health-care spending growth rate -- saving $2 trillion or more." Of course, their part of that savings may be significantly less than the full $2 trillion. The groups offered no further specifics. And, anyway, there would be no way to enforce such a hazy commitment. The administration, I'm told, understood this, but the president and others apparently chose to convey a much more optimistic message.

And then there's the budget. Administration officials have argued that they recognize the importance of getting an unsustainable situation back to a manageable level once the economy has recovered. How do they propose doing this? They would cut $2 trillion out of the budget -- a promise that has become one of their favorite talking points.

But in budgeting, "savings" all depends on where you begin. In order to come up with $2 trillion savings, the Office of Management and Budget makes a lot of assumptions that don't reflect the real world or standard budget conventions.

They assume that all of President Bush's tax cuts -- slated to expire at the end of 2010 -- would continue indefinitely. They then factor in a repeal of the tax cuts going to families making over $250,000. And voila: $600 billion in savings. Except that extending a law only to repeal it doesn't really help the bottom line.

They also assume that the war in Iraq would continue at a greater intensity than the president supports (or even President Bush supported). And then they make a show of deflating the pumped up Iraq spending for a "savings" of more than $1 trillion.

Another $300 billion of OMB's "savings" comes from interest payments that are little more than accounting gimmicks.

The frustrating thing here is that I believe Obama is truly concerned about the country's fiscal situation. He has surrounded himself with brilliant economic thinkers who share his concerns about excessive deficit spending. And he takes every opportunity to remind us of the importance of balancing the books. Just last week, he pivoted from a question about increasing Social Security benefits to say:

But what is true about the budget -- is absolutely true -- is that we can cut programs, we can eliminate waste, we can eliminate abuse, we can eliminate earmarks; we could do all that stuff, and we're still going to have a major problem, because Social Security, Medicare, Medicaid, interest on the national debt. And so I have said before and I will repeat again that my administration is going to seek to work with Congress to execute serious entitlement reform that preserves a safety net for our seniors, for people with disabilities, but also puts it on a firmer, stable footing so that people's retirements are going to be secure not just for this generation, but also for the next generation. And that's going to be hard work. It's going to require some tough choices, but I'm going to need support of the American people to get that done.

That response, emphasizing the need to cut entitlement spending instead of expanding it, is exactly the right point to make. (Though, at the same time, he's creating a huge new health-care entitlement.)

It's easy to understand the bind Obama is in. Being more direct about the policies required to fix the budget is politically perilous. But meaningful deficit reduction will involve real sacrifices -- of the sort you can't spring on the public all of a sudden. The president should be laying the foundation for what's to come.

Maya MacGuineas is director of the New America Foundation's Fiscal Policy Program and a visiting fellow in the Post opinions section.

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