…because I’m an economist and a mom–that’s why!

Judy Woodruff Talks Budget Baselines With McCain and Obama Advisors

July 30th, 2008 . by economistmom

Here is the video of Judy Woodruff’s July 29th PBS interview with McCain economic advisor, Nancy Pfotenhauer, and Obama economic advisor, Jason Furman.  Your homework:  Can you spot the budget baseline issues?  Look for the two biggies, and try to answer these questions for yourself (perhaps looking at previous posts here at this blog as your notes):

  • On ending/winning the war and using the “peace dividend” to reduce the budget deficit:  (i) how much deficit reduction is possible from said “dividend”, and how does that compare to the policies the candidates propose that would increase the deficit?; (ii) isn’t said ”dividend” implicitly already counted in the official budget baseline, since the war costs are not assumed to go on forever in the official baseline?…and (iii) no matter what the commitment of said “dividend” to deficit reduction, should that change our view of how the entirely deficit-financed war has adversely affected the budget outlook?
  • On extending the Bush tax cuts:  (i) the current-law, official CBO baseline has the tax cuts expiring at the end of 2010, so how does letting only some of them expire ”save” the federal budget any money?  (In my opinion, Jason Furman gives an honest response.)  (ii) if McCain wants to extend all the tax cuts and add new tax cuts, what does that imply about the effect of his tax cut proposals relative to either the official baseline or the “Bush policy extended” baseline? …and (iii) are you satisfied with Nancy Pfotenhauer’s explanation of the spending cuts that reconcile the McCain tax cut proposals with their claim of reaching a balanced budget by 2013?  (Are you in disbelief, or horrified?)

Finally, look for the two mentions of the Concord Coalition–one for each advisor.  What did Pfotenhauer say to subtly diss Concord, without literally labeling us “irrelevant”? 

4 Responses to “Judy Woodruff Talks Budget Baselines With McCain and Obama Advisors”

  1. comment number 1 by: B Davis

    Finally, look for the two mentions of the Concord Coalition–one for each advisor. What did Pfotenhauer say to subtly diss Concord, without literally labeling us “irrelevant”?

    I found a transcript of the interview at this link. The following excerpt contains Pfotenhauer’s reference to the Concord Coalition:

    JUDY WOODRUFF: But when it comes to tax cuts, we know they come with a price tag. And you have these new forecasts of the deficit next year going to $500 billion. There’s a nonpartisan group out there, the Concord Coalition, saying that Sen. McCain’s tax cuts would rise into the trillions over the next decade by the time he left office.

    Is that deficit a factor in his thinking about the economy?

    NANCY PFOTENHAUER: Well, almost all of these groups that are cited don’t take into consideration any spending reductions. They only look at the revenue side.

    And, also, they’re instruments of Washington or, if you will, animals of D.C. in that they assume that if you keep the taxes at the level they are, that that’s somehow a massive tax cut. That is not the way it works operationally for American families or businesses. If you allow them to pop back up, what it feels like and how it looks is that’s a tax increase.

    “Instruments of Washington or, if you will, animals of D.C.” seems like a pretty obvious diss so I’m guessing that the subtle diss was when she quoted the word “groups” with her fingers. This actually seemed a bit odd. Is she suggesting that Concord is not a “group”? I kind of wondered if she meant to say (and quote) the phrase “nonpartisan groups”. In any case, she is suggesting that we should not compare McCain’s proposals to the current-law, official CBO baseline.

    Following is what Jason Furman said about the Concord Coalition:

    JASON FURMAN: I have a lot of respect for the Concord Coalition and have done work with them over the years. And what you want to do is take these two plans and compare them to what would happen if we continued business as usual, if we keep doing what we’ve done in Washington for the last eight years, where we’ve added $4 trillion to the deficit.

    And then you say, what does Barack Obama’s plan do? And what does John McCain’s plan do? And the answer is Barack Obama’s plan reduces the deficit.

    Hence, he is expressing respect for Concord but is likewise suggesting (perhaps a bit more openly) that we should not compare either proposal to the current-law, official CBO baseline.

    To be fair, it seems like one of the worst things that an administration (and Congress) can do is implement an unsustainable tax cut that is set to expire during the next administration. In effect, they grabbed all the political capital from passing the tax cut and left all of the political pain in dealing with the expiration to the next administration. It seems like it should be against budget rules to pass a tax cut (or spending increase) that expires unless that expiration is clearly laid out and is set to occur relatively quickly (such as after the worst part of a recession). In addition, it should expire during the term of those who passed it, if possible.

    On ending/winning the war and using the “peace dividend” to reduce the budget deficit, I did find the following quote in the CBO letter to Senator Byrd accompanying their March 2008 CBO Baseline:

    Under the President’s proposals, the deficit would steadily diminish from 2009 through 2012, at which point the budget would be balanced; it would remain close to balance in most years through 2018. Several key factors contribute to that outcome, however. The budget excludes funding for military operations in Iraq and Afghanistan after 2009, incorporates significant reductions in discretionary spending relative to the size of the economy, and allows for a substantial expansion of the impact of the alternative minimum tax (AMT).

    Regarding the significant reductions in discretionary spending, that’s certainly visible Table S–7 of the just-released 2009 Mid-Session Review. The estimated spending for “non-security discretionary outlays” from 2007 to 2013 are 448, 476, 488, 456, 442, 433, and 431 billions of dollars. Hence, spending is estimated to drop 12 percent in actual dollars from 2009 to 2013.

    Also disturbing is Table S–13 which shows the estimated gross federal debt from 2007 to 2013 to be 8.951, 9.623, 10.438, 10.943, 11.425, 11.800, and 12.180 trillions of dollars. This comes to an increase in 2008 and 2009 of 672 and 815 billion dollars, respectively! The increase over the next six years is projected to be $3.23 trillion, even under the questionable assumptions given in the CBO letter.

  2. comment number 2 by: economistmom

    B Davis: Nice job! And turning it in so promptly, too! You get an “A” and a smiley face. :)

  3. comment number 3 by: AAustin

    Two Comments:

    1) “peace dividend”

    ..isn’t said ”dividend” implicitly already counted in the official budget baseline, since the war costs are not assumed to go on forever in the official baseline?…

    There is no peace dividend in the CBO baseline projections. CBO uses current defense discretionary spending levels as a starting point for baseline future defense discretionary spending levels, so war costs in the current budget year affect future baseline estimates. The use of supplementals for war funding complicates this, because war funding measures haven’t stretched to the end of the fiscal year. Thus, the slower troop withdrawal scenario costed in the Aug. 2007 CBO budget update shows an INCREASE in spending relative to baseline.

    On the other hand, the Administration proposals, as noted, do not include war costs after FY09.

    2) Budget horizon

    Having a 10-year budget horizon (CBO) or a 5-year horizon (Bush Admin) provides incentives to play games to make some proposals and policies seem less expensive than they really are. Having a long horizon, such as the 75-year horizon that the Social Security Trustees use is better, but hardly perfect. The Senate’s Byrd Rule, which can limit costs that extend beyond the 10-year window, provides some discipline, although it didn’t derail the Bush tax cuts or Medicare Part D. So — there is room for improvement in designing budget windows that minimize accounting chicanery.

  4. comment number 4 by: B Davis

    B Davis: Nice job! And turning it in so promptly, too! You get an “A” and a smiley face. :)

    I was trying for a good grade but I dared not even hope for a smiley face! Thanks!