POLITICS

Is Boehner double counting spending cuts?

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Politics,Beltway Confidential,Philip Klein

This morning, House Speaker John Boehner announced that, because he has so far failed to reach a deal with President Obama to avert the so-called fiscal cliff, he would proceed with a “Plan B.” Under this approach, Boehner will move a bill in the House of Representatives later this week that will make permanent current income tax rates for everybody earning under $1 million. It will not address the automatic cuts to Medicare and defense as a result of the sequester, or unemployment benefits, or any of the other non-tax items that have been part of fiscal cliff talks.

Boehner’s advancement of the “Plan B” option is not likely to represent an end point in the fiscal cliff chess match, but more likely, just his latest maneuver. So that’s why it’s still important to keep in mind something else Boehner said — that he supports a “balanced approach” in which $1 trillion in tax hikes are traded for $1 trillion in spending cuts, while Obama’s offer raised taxes by $1.3 trillion and only cut spending by $850 billion. But the important question to ask is, how is he measuring spending cuts? More specifically, is he measuring spending cuts beyond those that were already scheduled to go into effect automatically? Or, is he measuring spending cuts assuming the sequester gets averted? Because if it’s the latter, then the actual dollar amount of spending cuts being discussed could be a lot lower than $850 billion or $1 trillion. And if, under these circumstances, Boehner did offer Obama a one-year extension of the debt limit, it would also mean that he’s double counting the same spending cuts to offset two different debt limit hikes. Let’s just review the history.

During the summer 2011 debt limit showdown, Boehner insisted that Democrats agree to at least a dollar of spending cuts for every dollar increase in the debt limit. Because Obama wanted to increase the debt limit by over $2 trillion, it was difficult to agree to enough spending cuts. So, the parties came together and do what they do best — they punted. They signed an agreement that, on paper, cut spending by $2.4 trillion. But in reality, about half of it amounted to imposing caps on future spending, then the rest was to be determined by a “super committee,” supposedly motivated to strike a deal, because of automatic, mutually painful cuts that would be triggered if they did not. Those cuts — which total about $900 billion to defense and non-defense programs combined, plus additional savings from reduced interest payments — will go into effect on January 1 without some sort of deal.

Now we get to the current negotiations. Remember, if Republicans were to simply make permanent all of the current tax rates on income under $250,000, and allow them to go up on higher earners — which is what Obama campaigned on — it would raise taxes by $824 billion. But Boehner, in his offer to Obama last Friday (not to be confused with today’s “Plan B,”) went beyond that. Though Boehner moved the threshold for rate increases to income above $1 million, he proposed limiting various loopholes and deductions, so the resulting tax increase of $1 trillion would actually be $176 billion north of merely raising rates along the lines Obama campaigned on. So what would Boehner want to get in exchange for agreeing to these additional tax hikes? Based on his comments this morning, he’d want $1 trillion in spending cuts, including to entitlements. But as we’ve seen above, if nothing gets negotiated, then $900 billion in automatic cuts would go into effect anyway, more if you include interest payments. Also, Boehner’s proposal, according to various reports, includes a one-year increase in the debt limit, which would presumably rely on the idea of $1 trillion in spending cuts to meet Boehner’s “dollar for dollar” spending cuts to debt limit increase principle. But remember, the sequester was supposed to pay for the prior debt ceiling increase. So, if the same money that was supposed to be used to justify the prior debt ceiling increase is used to justify raising taxes and agreeing to another debt ceiling increase, it would amount to double counting.

There are a few caveats to consider. This is still a fluid situation and we don’t know where things will end up. The status of the sequester and debt limit are still very much up in the air. Also, my current understanding is that the sequester may not fully be wiped out by any deal, but merely delayed. Obviously, Republicans also have an interest in avoiding deep defense cuts that would go into effect with the sequester.

That having been said, when assessing any deal going forward, it will be crucial to measure the spending cut claims of both sides against the sequester to determine how much of a difference any deal will make on the spending front. If taxes go up on January 1 and the sequester does get avoided, it will be a perfect demonstration of why conservatives are so skeptical about the idea of trading tax hikes for promised future spending cuts.

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