Deceptions and the Federal Budget

We approach the time of year that the President submits – and Congress considers – a budget for the next fiscal year. If you are concerned about the debt and yearly deficit, this is also the time of year that politicians of all parties engage (often successfully) in a few common deceptions. They are successful, in part, because the budget process is complex and cloaked by jargon. The point of this post is to avoid that jargon while highlighting bipartisan tactics used to avoid making tough decisions.

Deception is a harsh term – but by the Webster definition (“something intended to fool”) – these certainly qualify. The incentives behind these deceptions are easy to understand. In general, constituents want to receive more in government benefits than they are willing to pay in taxes. But they also want their representatives to be responsible. If you are a member of Congress or the President, the easy way out is to use some these tactics to avoid either dramatic spending cuts or higher taxes.

Shift-and-bait cuts: In an attempt to appeal to people concerned about debt and deficits, a politician promises to be responsible by shifting attention to “wasteful” government programs. These programs are the bait – they relieve the strain to address serious budget problems by giving concerned citizens something concrete to sacrifice. The problem is that the bait represents such a small share of government spending, cutting it is meaningless (as far as addressing the national debt is concerned) – and likely does more harm than good.

Best-of-all-possible-projections: With similar motivations, a politician proposes a program that “adds nothing to the debt” – despite the fact that the program requires massive spending in the short term. The net-zero cost of the program is usually based on a long term projection. Whoever put the program together believes it will cause Americans to produce more and make more – which should lead to more tax revenue, so that the program pays for itself. The problem here is that projections are hard to get right, and easy to fudge. Most of the “savings” for these programs will occur later in the projection (say, the last 3-5 years). Coincidentally, that is when the projection is the most likely to be wrong. Surprise: that program that was supposed to cost nothing costs something.

Both of these tactics are already in use this year. The Trump administration proposes to eliminate PBS, the Legal Services Corporation, Americorps, the Export-Import Bank, and the National Endowment for the Arts. These programs are meant to shift attention from real budget challenges. PBS, for example, represents about 0.0001% of federal spending every year. It is bait. It gives the appearance of fiscal responsibility. But privatizing it will do almost nothing to address budget problems. It is like me telling you I’m selling my bike to maintain the leases on a fleet of a hundred Range Rovers. There are reasonable grounds for reducing spending on these programs – fiscal responsibility is not one of them.

In addition, the Wall Street Journal is reporting that the Trump administration has encouraged projections precisely like the ones I describe above. Because of internal leaks, we know they are designed to paint a picture the administration knows to be deceptive. They assume unlikely levels of growth in order to project higher revenue without raising taxes. The two examples I have used come from the Trump administration – but rest assure, both political parties use these tactics because despite the left-right divide, all voters want to believe the government can trim and grow its way out of debt.

The problem with this deception is that it is costly to voters, but beneficial to politicians. In the short term, they avoid upsetting constituents. But eventually, those constituents will have to pay – and it is difficult to hold politicians accountable for decisions they made a decade ago.

The take away is this: don’t take the bait, and be skeptical of long-term projections. Usually, meaningful ways to address budget problems also happen to be tough to swallow. They are: either cutting spending on Medicaid, Medicare, Social Security (about 60% of the budget) and defense (about 15% of the budget), or raising taxes. Sorry.

 

 

 

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