President Obama’s opening bid in budget talks with congressional Republicans is a reheating of his 80-page deficit reduction package from September 2011. The president calls it a “balanced” plan. Well, here it is:
Now, according to Obama’s math, his “balanced” plan cuts the projected cumulative debt by $4.4 trillion over ten years with 36% of the reduction coming from $1.6 trillion in tax increases — 80% from wealthier Americans, 20% from business. So, basically, $2 in spending cuts for each $1 in tax hikes. “Balanced.”
But once you begin to dig into the numbers, the plan doesn’t look balanced at all. As the bipartisan Committee for a Responsible Federal Budget noted back then:
The Administration claims that the plan would save about $4.4 trillion in total (including interest savings, war savings, and the costs of the jobs proposals). However … counting the war savings is counting a policy that is already in place and is thus a gimmick to be avoided. Taking out the war savings and savings from the discretionary cuts in the Budget Control Act leads to total savings of less than $2 trillion.
Of the supposed savings, then, $1.6 trillion comes from tax hikes and $577 billion comes from spending cuts, not counting saved interest. So 73% of the savings comes from taxes, 27% from spending cuts. That’s $3 of tax hikes for every $1 of spending cuts.
Even if you include interest savings, 60% of the debt reduction comes from tax hikes. Obama is making the exact mistake Europe is making by employing a tax-hike heavy version of fiscal austerity. Indeed, a 2010 analysis by AEI scholars found that successful fiscal consolidations are heavy on spending cuts, light on tax hikes. Even Bill Clinton’s debt reduction plan was 2-1 in favor of spending cuts. The Obama plan is dangerously unbalanced, especially given the weak economic recovery.