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CRFB.org The Debt is On an Unsustainable Long-Term Path 90% Percent of GDP 77 Percent of GDP Debt Held By the Public 80% Current Law with War Drawdown 70% 60% 2010 2012 2014 2016 2018 2020 2022 2024 Source: CBO Current Law with War Drawdown Savings, CRFB calculations CRFB.org 1 Debt is Worse if Congress Does Not Pay For Changes 90% Percent of GDP 80 Percent of GDP Permanent Doc Fix Debt Held By the Public 80% 70% Extension of Normal Tax Extenders and Refundable Tax Credits 60% 2010 2012 2014 2016 2018 2020 2022 2024 Source: CBO, CRFB calculations CRFB.org 2 Debt is Worse if Congress Does Not Pay For Changes 90% Percent of GDP 84 Percent of GDP Repeal of Future Sequester Cuts Debt Held By the Public 80% 70% 60% 2010 2012 2014 2016 2018 2020 2022 2024 Source: CBO, CRFB calculations CRFB.org 3 Debt is Worse if Congress Does Not Pay For Changes 90% Percent of GDP 86 Percent of GDP Extension of Unemployment Benefits and Bonus Depreciation Debt Held By the Public 80% 70% 60% 2010 2012 Source: CBO, CRFB calculations 2014 2016 2018 2020 2022 2024 CRFB.org 4 The War Savings Gimmick CBO assumes war spending will grow with inflation, rather than fall as intended $120 Billions Increase Current War Spending With Inflation (CBO Baseline) War Spending $100 $80 Reduce Troop Levels as Scheduled $60 President’s War Funding Levels $40 CBO’s Troop Reduction Schedule $20 $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: CBO, OMB Note: “War Spending” refers to OCO budget authority. CBO baseline maintains current war spending with inflation, while their “Troop Reduction Schedule” uses CBO’s drawdown of war spending assuming troop levels are reduced from 85,000 in 2013 to 30,000 by 2017. 2023 2024 CRFB.org 5 The War Gimmick Does Not Generate Real Savings “[R]eductions relative to the [CBO] baseline might simply reflect policy decisions that have already been made and that would be realized even without such funding constraints.” — Congressional Budget Office “Drawing down spending on wars that were already set to wind down and that were deficit financed in the first place should not be considered savings. When you finish college, you don’t suddenly have thousands of dollars a year to spend elsewhere — in fact, you have to find a way to pay back your loans.” — Maya MacGuineas, Committee for a Responsible Federal Budget “The savings from troop reductions in Iraq and Afghanistan do not represent actual savings.” — James Horney, Center on Budget and Policy Priorities “An honest budget cannot claim to save taxpayers’ dollars by cutting spending that was not requested and will not be spent.” — Chairman Paul Ryan, House Budget Committee CRFB.org 6 Small Phony War “Savings” Create a Huge Potential Slush Fund Caps above intended spending do not create savings. They open the door to new costs. $180 Billions $160 Planned Troop Drawdown $50 Billion Phony War "Savings" Current War Spending, Inflated President's Budget War Spending $140 $50 Billion in Phony Savings $120 $100 $80 ~$600 Billion Slush Fund $60 $40 $20 $0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: CRFB calculations based on CBO and OMB data Note: Spending refers to budget authority. “Current War Spending, Inflated” refers to CBO’s current law baseline war budget authority. “Planned Troop Drawdown” uses CBO’s drawdown of war spending assuming troop levels are reduced from 85,000 in 2013 to 30,000 by 2017. 2022 2023 2024 CRFB.org 7 Timing Gimmick #1 – Savings Now Which Cost Later Pension smoothing would reduce deficits in early years but increase them over time $5 Billions Savings to the Federal Budget $4 $3 $2 $1 $0 2014 2015 2016 2017 2018 2014-2019 Savings: $17 billion -$1 2020-2024 Costs: $13 billion 2019 2020 2021 2022 2023 2024 Costs Continue -$2 -$3 -$4 Source: Congressional Budget Office, 2/7/14 CRFB.org 8 Pension Smoothing Does Not Generate Real Savings “These are gimmicks, plain and simple...collecting more taxes now and less in taxes later doesn't help our bottom line.” — Maya MacGuineas, Committee for a Responsible Federal Budget “This proposed change in pension funding rules can’t ‘pay for’ anything. While it would raise money at first, it would lose money in later years.” — Chye-Ching Huang, Center on Budget and Policy Priorities “The proposal to ‘smooth’ pension contributions would merely shift tax revenue from the future into the present while destabilizing pensions even further and increasing the risks of a taxpayer pension bailout.” — Romina Boccia, Heritage Foundation “Such tactics mock the very idea of PAYGO. These are not offsets. They are charades.” — Bob Bixby, Concord Coalition CRFB.org 9 Timing Gimmick #2 – Shifting Savings Inside the Budget Window The “Pathway to SGR Reform Act” shifted $2 billion of the sequester from 2024 to 2023 $20 Mandatory Sequester Savings $18 Billions 11th Year Cost: $2.1 Billion 10 Year Increase in Savings: $2.1 Billion $16 $14 $12 $10 $8 $6 $4 $2 $0 2014 2015 2016 2017 2018 Source: Congressional Budget Office and CRFB staff calculations 2019 2020 2021 2022 2023 2024 CRFB.org 10 Timing Gimmick #3: Temporary Savings, Permanent Costs Using one-time savings to pay for a permanent tax cut will increase debt in future years $60 Billions End of the 10-year budget window Savings to the Federal Budget $50 $40 $30 $20 10-Year Savings from Repealing LIFO: $114 billion $10 $0 Costs Continue: ~$10 bn/yr -$10 10-Year Costs From a 1% Corporate Rate Cut: $113 billion -$20 Debt Impact -$30 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: CRFB staff calculations based on CBO estimates. For simplicity, numbers exclude interest savings. 2024 2025 2026 CRFB.org 11 The Harm in Offsetting 1st-Year Costs with 10th-Year Savings Accrued interest from waiting 10 years could leave a third of a bill’s costs unpaid. 40 Billions Rising Costs from Accumulated Interest 35 Cumulative Costs 30 $25 billion savings 25 20 $25 billion costs 15 10 $8.4 billion interest 5 0 2015 2016 2017 2018 2019 2020 Note: Graph assumes $25 billion in 2015 costs paid for with $25 billion of savings in 2024 2021 2022 2023 2024 CRFB.org 12 For More Information, Contact Stark Sutton at [email protected] or 202-735-2811 CRFB.org