Summary of the Reid/Obama Debt Ceiling Increase

Since no legislative text or CBO estimate is currently available, the following summary is based on information distributed by Senator Reid’s office and is subject to change. 

Debt Limit Increase:  According to Senator Reid’s office, his plan would increase the debt limit by approximately $2.7 trillion, from $14.3 trillion to $17 trillion.

$1 Trillion in Phantom Cuts from Funds that Have Not Been Requested and WILL NEVER be Spent:   The Obama/Reid plan contains more than $1 trillion in imaginary “savings” from war spending that is not written into law, has never been requested, and no one plans to ever spend. 

The reason this budget deception is possible is because CBO’s current-law baseline is forced to assume that war spending over the next ten years will be the same each year as it was last year—a level based on a temporary troop surge.  However, surge level spending on the wars in Iraq and Afghanistan has already begun to wind down and will be drastically less than CBO is forced to estimate over the coming years.   According to CBO, the estimate for war spending in its baseline “incorporates the assumption that funding for war-related activities will continue at $159 billion a year (the amount provided so far for 2011, annualized) with adjustments for inflation, whereas the President’s budget includes a request for appropriations of $127 billion for such activities for 2012 and a placeholder of $50 billion a year thereafter.”  It is widely known that the cost of the ongoing wars in Iraq and Afghanistan will be significantly reduced, but CBO’s mandate forces it to assume spending of more than $1 trillion that will never leave the coffers.

The Obama/Reid plan would count expected reductions in war spending as “savings,” even though the money has not been spent and never will be spent.  As George Will once wrote, “Why, one wonders, not ‘save’ $5 trillion by proposing to spend that amount to cover the moon with yogurt and then cancelling the proposal?”  This budgeting trick would do nothing to reduce our job-destroying debt or put our country on a sustainable fiscal path.  Instead of counting savings from money that has not—and will not—be spent, the House Republican plan would make immediate and real spending cuts and establish a process to make additional cuts in the near future.  Democrats want to use a budget gimmick to make it look like they are “cutting” non-existent spending so they can avoid politically tough decision until after an election.  House Republicans have offered a plan to make real cuts in spending, place caps on spending to provide clear limits on government growth, and force Congress to bring forth a Balanced Budget Amendment.

Sen. Reid’s office has stated that “Paul Ryan’s budget also included this savings in its deficit reduction calculation.”  However, according to the House Budget Committee, “The House-passed budget cuts $6.2 trillion in spending relative to President Obama’s FY2012 budget request.  This $6.2 trillion figure assumes ZERO savings from the global war on terror relative to the President’s budget.”  In addition, Sen. Reid assumes that this would reduce interest spending by $180 billion, bringing the total amount of the made-up savings $1.18 trillion.  For more information on this $1 trillion gimmick, see the House Budget Committee website.

$1.2 Trillion in Discretionary Reductions:  According to Senator Reid’s office, the plan includes $1.2 trillion in unspecified discretionary cuts which purportedly had already been agreed to by negotiators from each Party.

$100 Billion in Mandatory Reductions:  According to Senator Reid’s office, the proposal saves:

• $40 billion by reducing fraud and abuse in mandatory programs.  This includes: Continuing Disability Reviews and SSI redeterminations, Internal Revenue Service tax enforcement, health care fraud and abuse control, and Unemployment Insurance improper payment reviews.
• $30 Billion in unidentified Fannie Mae and Freddie Mac Reforms.
• $15 Billion in unidentified Spectrum Sales.
• $10-$15 Billion in unidentified Agricultural Reforms.

Interest Savings:  According to Senator Reid’s office, the package includes $400 billion in interest savings, from $220 billion from the discretionary spending cuts and $180 billion from non-existent savings from the wars in Iraq and Afghanistan.

Joint Congressional Committee to Find Future Savings: According to Senator Reid’s office, the package will establish a joint, bipartisan committee, made up of 12 members, to present options for future deficit reduction. The committee’s recommendations will be guaranteed an up-or-down Senate vote, without amendments, by the end of 2011.