Gimmicks We Can Believe In

Obama’s budget is still deceptive, just not in ways we’re used to.

Office of Management and Budget Director Peter Orzag with Barack Obama

All presidential budgets are rife with trap doors, gimmicks, and flimflammery. This annual budget exercise is like a grand, national fish story every president gets to tell: Each administration exaggerates differently, but the basic story is the same.

That said, President Obama’s $3.55 trillion budget is different in at least two significant ways. First, it will be held to a higher standard—at the insistence of the administration itself. And, second, its gimmicks are designed to make the administration look as if it is saving more, not spending less.

Rarely has an administration made such a big deal about its honesty and transparency. Obama said in his speech to Congress on Tuesday, “I am committed to restoring a sense of honesty and accountability to our budget.” When Budget Director Peter Orszag announced the budget, he said: “The first step in addressing this very deep fiscal hole is honesty. This budget will not play the games that are typically played.”

So we face a familiar question, with the Obama administration, of what standard to pick when evaluating the administration. Should we judge it against the Bush standard, which included lots of gimmicks—including not accounting for the Iraq war—or against the standard Obama sets for himself? It’s not the first time we’ve come to this question. On government transparency, ethics, and now truth in budgeting, the reality has fallen short of the bold claims. Obama’s new ethics rules were heralded as the toughest in history, but after days of boasting, we learned that there were exceptions to them. The stimulus bill was heralded as a model of transparency but, in the end, wasn’t conceived transparently.

President Obama discusses his budget proposal

Some gimmicks in the Obama budget are thoroughly familiar. The administration assumes the economy will rebound faster than most other economists. But maybe these White House projections are more optimistic, you say, because they account for the effects of the recently passed stimulus bill. No dice: When I asked an administration aide whether any forecasters had updated their economic outlook based on the stimulus bill, I was told that private-sector forecasts had already anticipated the stimulus’s effects.

Assuming a growing economy allows administration number crunchers to assume more tax revenues, which means a smaller deficit. This helps Obama make the bold claim that he will cut the deficit in half by the end of his term. Proving that he’s fiscally serious helps the president counter worries about the billions and billions that are going out the door to bail out homeowners, bankers, automakers, insurers, and anyone else I may have overlooked.

Obama claims that he’s found $2 trillion in savings over the next 10 years. To achieve some of that savings, he inflates what’s known as the baseline—the metric against which the costs of policy changes are measured.

Here’s an analogy that may help you understand this trick. Let’s say that your daughter is about to finish her last year of college, after which she plans to enter a monastery, where she will take a vow of poverty and refuse future parental help. But as you plan your budget for the next decade, you use current-year expenses as your “baseline” and assume that, for the next 10 years, she’ll still be in college and you’ll still be paying her annual tuition. When she graduates and enters the monastery as planned, you get to pretend that you “saved” the money for the nine years of college tuition you knew she was never going to need.

In this manner, the Obama administration pretends that some of the Bush tax cuts are going to affect the budget years after they are set to expire. It also assumes higher Medicare physician payments than projected under current law requirements. The same is true with the accounting for the Iraq war. The baseline assumes the war will be funded at high levels for the next 10 years, even though Obama is planning to bring 100,000 troops home in the next 19 months.

By tweaking the baseline, an administration gets credit for deficit reduction without having to make the hard choices really necessary to tame the budget—which Obama says is a key goal of his administration. “Those adjustments create much larger baseline deficit projections, making it easier to claim that the budget is an improvement over current policy,” says Susan Tanaka, a longtime budget expert working for the Peterson Foundation. As a political matter, if an administration can show that it’s making progress shrinking the deficit, it gains political capital in the fight for resources because it can claim the moral high ground for making tough decisions and being a good steward of public funds.

Not all of the Obama administration’s changes in the current baseline are sneaky. Some are actually sensible. The Obama team reverses the Bush policy of pretending the Alternative Minimum Tax will not be fixed, as it is every year, and they prudently assume a certain level of emergency spending. The Obama team also chooses not to hide the funding for its health care plan or tax cuts.

The Obama tricks aren’t as bad as the Bush administration’s budget gimmicks, which were highly fantastical. Obama may be assuming big spending on a war he’s planning to wind down, but Bush pretended the wars weren’t being fought at all. So while Obama is not being straight when he pretends his budget doesn’t contain gimmicks, at least he’s operating on planet Earth. As one budget expert put it when I spun out my metaphor about having a daughter in her last year of college: “Bush pretended you didn’t even have a daughter.”