Keith Hennessey of Stanford University Explains Ratio Gimmicks in the President’s 2013 Budget.

“The Obama Administration claims their new budget contains $2.50 of spending cuts for every $1 of tax increases. Here is White House Chief of Staff and former Budget Director Jack Lew on Meet the Press yesterday:

'We’ve seen from Republicans in–particularly Republicans in the House, but with Republicans generally, that they don’t want to be part of any plan that raises taxes at all. The president’s budget has $1 of revenue for every $2 1/2 of spending cuts. This can be done, but it can only be done when we work together.'


Their 2.5:1 ratio is bogus. The President’s team is (1) playing a timeframe game and (2) counting interest savings from tax increases as spending cuts.

Contrary to Mr. Lew’s assertion, the President is proposing at least $1.20 of tax increases for every dollar of proposed spending cuts. The President’s budget locks in historically high spending levels and relies more on tax increases than spending cuts for the limited deficit reduction it proposes.

Table S-3 from the newly released President’s Budget starts measuring deficit reduction a year ago, in January 2011. The table shows $5.3 T of deficit reduction over the next ten years resulting from a combination of laws enacted last year and the President’s new proposals released in today’s budget.

The President’s budget is a set of policy proposals for the future. When most people hear the “The President’s budget has $1 of revenue for every $2 1/2 of spending cuts,” they think this ratio applies to the changes the President proposes for the future.

I will therefore split the OMB table and recalculate this ratio, ignoring spending cuts and tax increases that have already been enacted into law and looking only at future policy proposals. I argue this is the right way to do this ratio. Like the OMB table, this one shows deficit reduction for the next 10 years ($ in billions, 2013-2021).

	Already enacted	New proposals	Total
spending cuts	1720	1254	2974
tax increases		1510	1510
interest effects			800
total deficit reduction	1720	2764	5284
spending / taxes		0.83	2.50
taxes / spending		1.20

Looking only at new proposals, the President’s budget proposes 83 cents in spending cuts for each dollar it proposes in tax increases. Or we could say the President’s budget proposes $1.20 in tax increases for each dollar in proposed spending cuts.

The gimmicks

The President’s team is playing at least two games to generate their 2.5:1 ratio:


They are cherry-picking their timeframe to make the ratio look at high as possible;
-and-
They are counting all interest savings as spending cuts.
　
Why did they start measuring in January 2011? Because that was the start of the Republican Congress, because last year only spending cuts were enacted, and because that timeframe maximizes the spending increase to tax cut ratio.” - Keith Hennessey, 02/13/2012


The entire essay, The ratio of spending cuts to tax increases in the President’s budget, appears in the link below:


http://keithhennessey.com/2012/02/13/bad-ratio/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+KeithHennessey+%28Keith+Hennessey%3A+Your+guide+to+American+economic+policy%29