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Fiscal Cliff: Let the Triple Counting Begin

December 18, 2012 J,

By: James Valvo

The lame-duck deal to avert the fiscal cliff is taking shape and although the details remain fuzzy it looks like Washington is poised to use a classic budget gimmick to avoid their most-hated exercise: cutting spending.  Republicans and conservatives have consistently mocked the double counting of the Medicare reductions in the President’s health care law, which were counted once to shore up Medicare and again to pay for new spending.  The fiscal cliff deal could do them one better; Obama and Boehner could try to triple count spending cuts.

Before we look at the triple counting, here are the reductions they came up with.  It looks like the two sides could agree to around $1.2 trillion in spending reductions over ten years in the final deal.  This could include:

  • Switching to chained-CPI for Social Security COLAs (smaller benefit increases),
  • Lower provider payments in Medicare (unclear exactly where or how),
  • With the remainder less clear but established as a target for the 113th Congress.
  • It’s also possible reduced interest payments and even war funding we were never going to spend would be included in the silly math run up the purported savings.

Leaving aside the laughably inadequate scale of these spending reductions, Obama and Boehner could try to use this $1.2 trillion in cuts to “turn off” every other spending cut in sight.

Let the triple counting begin:

Even Swap: $1 Trillion in Higher Taxes.  Speaker Boehner gave in early on revenues, offering $800 billion from streamlining the tax code.  Obama refused to accept any deal that didn’t include higher rates.  Boehner relented and offered increased rates on those earning above $1 million.  The President countered with a $400,000 threshold, and the deal is likely to be somewhere in-between.

This bad tax policy is projected to kick off around $1.2-1.4 trillion over the next ten years.  Boehner has insisted on a balanced deal (remember when Obama used to use that word) meaning he wants equal spending cuts to tax hikes.  If they did nothing else, trading these tax hikes for the cuts outlined above would be a roughly one-to-one swap.

Double Counting: Offsetting the Sequester.  Reports indicate that both sides intend to break their promise under the BCA and waive the $1.2 trillion sequestration that resulted from the oh-so Super Committee’s failure to cut spending.  Turning off the sequester will increase spending by $1.2 trillion, eliminating half of the deficit reduction agreed to in exchange for the last debt limit increase.  If the fiscal-cliff bargainers want to turn this off, they’ll have to offset it or at least they’ll want to publically claim that they’re offsetting it.

No one can claim that the tax hikes are paying for the sequester.  Because taxes are scheduled to go back to the Clinton levels, CBO will actually score the large tax hike as a cut against the elevated baseline.  This is because rates for most people will remain low.  Thus this increased revenue is not actually available for scoring purposes to offset the sequester.  As for the spending cuts, if Boehner claims the $1.2 trillion in “new” spending cuts were the price of agreeing to the tax hikes then counting them again as an offset the sequester would be double counting.

Triple Counting: Raise the Debt Ceiling Again.  Speaker Boehner has repeatedly insisted that each new dollar of debt must be paired with a dollar of reduced spending.  Given enough time and enough new debt, this framework would eventually fix the fiscal problem—but only if Congress uses authentic, timely and new spending cuts each time.  The President insists that Congress raise the debt ceiling immediately, and Boehner appears conciliatory on this point.  If the $1.2 trillion in cuts have already been used to offset the sequester and as a swap for higher taxes, then it would triple counting to use them again for the next debt ceiling increase.

The hard reality is that neither party in this debate wants to cut large amounts of spending, but they both want credit for doing so.  We will not be fooled by budget gimmicks if they cut such a minimal amount and try to waive the magic wand three times to make their other promises go away.

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