President Obama’s budget identifies a group of policies as a $1.8 trillion deficit reduction proposal. I found the budget presentation of this proposal somewhat confusing; in particular, it is difficult to see how much deficit reduction the president wants to do through spending cuts versus revenue increases.
After some digging into the weeds, I pulled together the following summary to answer that question:
The proposal would increase revenue by $750 billion over the next decade. Much media coverage has been incorrectly suggesting an increase of either $580 billion (revenue from limiting tax breaks for high-income taxpayers and implementing a “Buffett Rule”) or $680 billion (adding in the revenue that would come from using chained CPI to index parameters in the tax code).
But there’s another $67 billion in additional revenue. Almost $47 billion would come from greater funding for IRS enforcement efforts that lead to higher collections. To get that funding, Congress must raise something known as a “program integrity cap.” The administration thus lists this as a spending policy, but the budget impact shows up as higher revenues (assuming it works—such spend-money-to-make-money proposals don’t always go as well as claimed, although there is evidence that IRS ones can). Several similar administrative changes in Social Security and unemployment insurance add almost $1 billion more.
Another $20 billion would come from increasing federal employee contributions to pension plans. That sounds like a compensation cut to me and, I bet, to affected workers, and would be implemented through spending legislation. Under official budget accounting rules, however, it shows up as extra revenue as well.
In total, then, “spending” policies would generate more than $67 billion in new revenue.
Taken as a whole, the president’s deficit reduction proposal includes $750 billion in revenue increases, $808 billion in programmatic spending cuts, and $202 billion in associated debt service savings. The proposal thus involves about $1.1 in programmatic spending cuts for every $1 of additional revenue.
At least according to traditional budget accounting. If you believe (as I do) that many tax breaks are effectively spending in disguise, the ratio of spending cuts to tax increases looks much higher. From that perspective, much of the $529 billion that the president would raise by limiting deductions, exemptions, and exclusions for high-income taxpayers should really be viewed as a broadly-defined spending cut. I haven’t had a chance to estimate how much of that really is cutting hidden spending, but even if only three-quarters is, the ratio of broadly-defined spending cuts to tax increases would be 3.5-to-1.
Don-
To spending through the tax code, I think you need to consider the category of taxing through budget expenditures. A true reduction in spending should lead to a reduction in the quantity of something acquired. When the government decides that it is going to lower its payments for healthcare while acquiring the same amount of goods, it is more akin to a tax on providers of healthcare than a reduction in spending (this is not making a judgment on whether price levels are appropriate, but merely comparing to the status quo).
DSM
Hi Dan – Taxes do indeed show up on the spending side of the ledger. But provider payment example still feels like a spending cut to me if the providers are free to decide whether to deal with the government at the new lower prices.
One stark example of taxes on the spending side are certain regulatory fees that are counted as negative spending, rather than tax revenues, because Congress enacted laws specifying that they be treated that way.
As always, the answer here may be “it depends”. A physician may choose not to accept Medicare patients, but one who focuses on diseases of the aged would be hard pressed to do so without going out of business…Medicare may be close to a monopsonist purchaser. And cuts in drug prices can’t really be met by refusing to do business with the government (even in recent situations where Medicaid policies take drug prices below zero). When changes in price cannot easily influence supply/demand, they seem to me more like taxes on the seller. I suppose the counter argument would be that I framed the comment in terms of short term effects, and in the long term, there would certainly be changes.