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Playing By the (Budget) Rules: Understanding and Preventing Budget Gimmicks

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Playing By the (Budget) Rules: Understanding and Preventing Budget Gimmicks

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Playing By the (Budget) Rules: Understanding and Preventing Budget Gimmicks

  1. 1. CRFB.org1
  2. 2. CRFB.org Budget Gimmicks The breakdown in the federal budget process and erosion of budget discipline have led to the reliance on budget gimmicks. While a number of budget rules and norms exist to enforce fiscal discipline, budget gimmicks provide legal workarounds to these rules and norms. 2
  3. 3. CRFB.org Budget Gimmicks 3 For more information on the 20 budget gimmicks presented in this chartbook, read CRFB’s in-depth paper: Playing By the (Budget) Rules: Understanding and Preventing Budget Gimmicks http://www.crfb.org/papers/playing-budget-rules-understanding-and- preventing-budget-gimmicks
  4. 4. CRFB.org Playing By the (Budget) Rules: Understanding and Preventing Budget Gimmicks 1. Unrealistic Policy Assumptions 2. Rosy Economic Scenarios 3. Magic Asterisks and Unspecified Savings 4. Inflated Savings Estimates 5. Shopping for Estimates 6. Arbitrary Phase-Ins 7. Front-Loading Costs, Back-Loading Savings 8. Pushing Costs Outside the Budget Window or Savings Inside the Window 9. Using Temporary Savings to Offset Permanent Costs 10. Arbitrary Policy Sunsets 11. Back-Loading Costs Beyond the Ten-Year Window 12. Changing the Ten-Year Window to Evade Fiscal Responsibility 13. Counting Timing Shifts as Budgetary Savings 14. Using OCO to Circumvent Discretionary Spending Caps 15. Counting Planned War Spending Reductions as Savings 16. Phantom Savings from Uncapped Discretionary Spending 17. Counting Savings from Extending Discretionary Spending Caps 18. Phony Changes in Mandatory Programs (CHIMPs) 19. Double Counting Trust Fund Improvements 20. Directing Scorekeeping to Favor Chosen Policies 4
  5. 5. CRFB.org We break down the 20 gimmicks into 4 categories:  Assumption Gimmicks  Manipulating the Budget Window  Discretionary Spending Gimmicks  Other Gimmicks 5 Playing By the (Budget) Rules: Understanding and Preventing Budget Gimmicks
  6. 6. CRFB.org Assumption Gimmicks 1. Unrealistic Policy Assumptions 2. Rosy Economic Scenarios 3. Magic Asterisks and Unspecified Savings 4. Inflated Savings Estimates 5. Shopping for Estimates 6
  7. 7. CRFB.org 1. Unrealistic Policy Assumptions  Budget authors will propose or assume policies they know can never actually be realized in order to make their budget appear more fiscally responsible.  For example, the President’s FY 2019 budget assumed $1.5 trillion in cuts to non-defense discretionary (NDD) spending just after policymakers agreed to increase discretionary spending, including NDD spending, for 2018 and 2019.  Every year they have been in place, the sequester-level caps on discretionary spending have been raised. 7
  8. 8. CRFB.org Percent Real GDP Growth Source: WSJ = a survey compiled by the Wall Street Journal; Professional Forecasters Survey (PF Survey) = compiled by the Federal Reserve Bank of Philadelphia; EIU = The Economist Intelligence Unit; OMB = Office of Management and Budget (President’s FY 2018 Budget); CBO = Congressional Budget Office (June 2017 Baseline); OECD = Organisation for Economic Co-operation and Development; IMF = International Monetary Fund; UN = United Nations. 2. Rosy Economic Scenarios 2017 Survey of Projected Real GDP Growth Rates 2.4 2.3 2.3 1.9 3.0 2.1 1.9 1.6 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2017 Long-Term (FinalYear) 8
  9. 9. CRFB.org Billions of BA Source: Office of Management and Budget and CRFB calculations. Data excludes the effects of the Bipartisan Budget Act of 2018. 3. Magic Asterisks and Unspecified Savings Base NDD Budget Authority in the FY 2019 President’s Budget $0 $100 $200 $300 $400 $500 $600 $700 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 President's Budget Levels ~$1.75 Trillion Baseline 9
  10. 10. CRFB.org 4. Inflated Savings Estimates  Inflated savings occur when policymakers overstate potential deficit reduction from a given policy.  For example, the President’s FY 2019 budget claimed $140 billion of savings from reducing improper payments when similar policies have saved less than $10 billion.  Savings in the FY 2019 budget assumed improper payments could be reduced by 1/3 by 2028 – far in excess of what experts and analysts believe is possible. 10
  11. 11. CRFB.org 5. Shopping for Estimates  The Chair of the Budget Committee technically has the right to select the official score and thus could shop around for a preferred score.  To use a score that is not from CBO, however, would be extraordinarily unusual.  For example, in July 2017, one Senator suggested having HHS score an amendment to the Better Care Reconciliation Act if CBO could not produce a score quickly enough. 11
  12. 12. CRFB.org Manipulating the Budget Window 6. Arbitrary Phase-Ins 7. Front-Loading Costs, Back-Loading Savings 8. Pushing Costs Outside the Budget Window or Savings Inside the Window 9. Using Temporary Savings to Offset Permanent Costs 10. Arbitrary Policy Sunsets 11. Back-Loading Costs Beyond the Ten-Year Window 12. Changing the Ten-Year Window to Evade Fiscal Responsibility 13. Counting Timing Shifts as Budgetary Savings 12
  13. 13. CRFB.org Billions of Dollars Source: JCT. Excludes timing shifts of corporate tax revenue from one year to another. 6. Arbitrary Phase-Ins Annual Cost of the 2001 Tax Cuts $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Fully In Effect Set To Expire Tax Cuts Phasing In 13
  14. 14. CRFB.org 7. Front-Loading Costs, Back-Loading Savings  Front-loading costs while back-loading savings reduces the likelihood that offsets will ultimately materialize while leading to additional borrowing costs even if they do.  For example, the Bipartisan Budget Act of 2013 provided sequester relief in FY 2014 and 2015.  $47 billion of its $85 billion in offsets occurred in the final two years of the budget window.  One of these back-loaded offsets – an adjustment to military retirement benefits – was later repealed. 14
  15. 15. CRFB.org Billions of Dollars Source: Congressional Budget Office and CRFB calculations. 8. Pushing Costs Outside the Budget Window or Savings Inside the Window Annual Savings of Pension Provisions of the Bipartisan Budget Act of 2015 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 2018 2019 2020 2021 2022 2023 2024 2025 2026 Artificial “Savings” Transferred Inside the Window: $2.6 Billion Endoftheten-yearbudgetwindow 15
  16. 16. CRFB.org 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -$25 -$20 -$15 -$10 -$5 $0 $5 $10 $15 $20 $25 $30 Billions of Dollars Source: Congressional Budget Office. 9. Using Temporary Savings to Offset Permanent Costs Savings/Costs (-)of the 2014 House Proposal to Replace the Sustainable GrowthRate Total Costs: $49 billion Total Savings: $94 billion Costs Continue 16
  17. 17. CRFB.org Billions of Dollars Source: Joint Committee on Taxation, CRFB calculations. Numbers rounded to the nearest $5 billion. Interest effects not shown. 10. Arbitrary Policy Sunsets Annual Costs of the Tax Cuts & Jobs Act $136 $280 $260 $220 $180 $140 $120 $115 $40 -$35 $285 $265 $230 $220 $200 $180 $175 $210 $280 -$50 $0 $50 $100 $150 $200 $250 $300 $350 2018 2019 2020 2021 2022 2023 2024 2025 2026 Tax Cuts and Jobs Act If Extended 2027 Provisions Start Expiring Most Provisions for Individuals Expire 17
  18. 18. CRFB.org -$10 $0 $10 $20 $30 $40 $50 $60 $70 $80 2014 2017 2020 2023 2026 2029 2032 2035 11. Back-Loading Costs Beyond the Ten-Year Window 2015 Permanent Doc Fix Illustrative Costs and Savings Path 18 First Decade Second Decade Costs Savings Source: Congressional Budget Office Score of H.R. 2 and CRFB calculations. Costs include associated debt service. Billions of Dollars
  19. 19. CRFB.org 12. Changing the Ten-Year Window to Evade Fiscal Responsibility  Policymakers could extend (or shrink) the budget window simply to evade current budget rules or norms.  For example, during consideration of the Tax Cuts and Jobs Act, some advocated for extending the budget resolution from 10 years to 20 or 30 years to circumvent the Byrd rule.  This would have helped make the tax cuts more permanent rather than expire after 8 years. 19
  20. 20. CRFB.org 13. Counting Timing Shifts as Budgetary Savings Annual Deficit Impact of Pension Provisions in 2014 Transportation Bill 20 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -$5 -$4 -$3 -$2 -$1 $0 $1 $2 $3 $4 $5 $6 Total Savings: $19 billion Total Costs: $12.5 billion Costs Continue Source: Joint Committee on Taxation, July 2014. Billions of Dollars
  21. 21. CRFB.org Discretionary Spending Gimmicks 14. Using OCO to Circumvent Discretionary Spending Caps 15. Counting Planned War Spending Reductions as Savings 16. Phantom Savings from Uncapped Discretionary Spending 17. Counting Savings from Extending Discretionary Spending Caps 18. Phony Changes in Mandatory Programs (CHIMPs) 21
  22. 22. CRFB.org 14. Using OCO to Circumvent Discretionary Spending Caps Omnibus Reduces OCO Spending, But Still Spends Above Caps $18 $80 $87 $79 $115 $166 $182 $140 $163 $159 $127 $82 $86 $64 $59 $83 $65 $8 $23 $3 $3 $4 $5 $14 $11 $11 $7 $9 $15 $21 $13 $20 $88 $110 $82 $118 $170 $187 $154 $163 $159 $138 $93 $92 $74 $74 $104 $78 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 2002 2004 2006 2008 2010 2012 2014 2016 2018 Omnibus Defense Non-defense President's Request Source: Office of Management and Budget, Congressional Research Service, Republican Study Committee documents for 2018 Omnibus. Before 2013, the defense and non-defense categories were not as clearly defined, so the allocations between the categories are not comparable across years. Totals for each year are in black. Billions of Dollars 22
  23. 23. CRFB.org 15. Counting Planned War Spending Reductions as Savings 2014 Example of War Drawdown “Slush Fund” 23 Sources: Congressional Budget Office, Office of Management and Budget, U.S. Senate Committee on Veterans Affairs, and CRFB calculations. Billions of Dollars
  24. 24. CRFB.org 16. Phantom Savings from Reducing Uncapped Discretionary Spending Emergency Designation Spending over Time 24 $10B $53B $6B $12B $8B $28B $110B $0 $20 $40 $60 $80 $100 $120 2012 2013 2014 2015 2016 2017 2018 Hurricane Sandy Hurricanes Harvey, Irma, & Maria Source: Congressional Budget Office. Billions of Dollars
  25. 25. CRFB.org $1,000 $1,100 $1,200 $1,300 $1,400 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 CBO Baseline OMB Baseline Discretionary Caps in President's Budget 2022-2025 OMB Claimed Savings: $230B 2022-2025 Actual Cost: $80B 17. Counting Savings from Extending Discretionary Spending Caps Budgetary Effect of the President’s FY 2016 Proposed Discretionary Caps 25 Sources: Congressional Budget Office, FY 2016 President’s budget, and CRFB calculations. Billions of Dollars
  26. 26. CRFB.org 18. Phony Changes in Mandatory Programs Nearly All the CHIMPs Produce No Savings Sources: Congressional Budget Office and CRFB calculations. CHIMPs without real savings by cutting empty budget authority: $3.7B CHIMPs without real savings by delaying spending: $13.3B Net CHIMPs with real savings: $500M Total net CHIMPs: $17.5 billion 26
  27. 27. CRFB.org Other Gimmicks 19. Double Counting Trust Fund Improvements 20. Directing Scorekeeping to Favor Chosen Policies 27
  28. 28. CRFB.org 19. Double Counting Trust Fund Improvements  Lawmakers often use trust fund savings or revenue to finance non-trust-fund spending or tax cuts; if this money improves solvency, it is counting the same money twice.  For example, among the pay-fors included in the Affordable Care Act was a new Medicare surtax on wages over $200,000 as well as a number of spending reductions within the Medicare HI program.  These changes improved the solvency of the HI trust fund; at the same time, they were counted as offsets to new spending. 28
  29. 29. CRFB.org 20. Directing Scorekeeping to Favor Chosen Policies  The Budget Committees have the power to direct CBO to change the way they score certain legislation.  For example, in 2000, the Budget Committees directed CBO to approximate OMB’s methods for estimates of a variety of programs but most notably for defense.  The directed scorekeeping lowered the score of appropriations by $3 billion in budget authority and about $19 billion in outlays. 29
  30. 30. CRFB.org For More Information, Read Playing By the (Budget) Rules: Understanding and Preventing Budget Gimmicks http://www.crfb.org/papers/playing-budget-rules- understanding-and-preventing-budget-gimmicks 30

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