The Debt is on an Unsustainable Long-Term Path

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2 Debt Held By the Public The Debt is on an Unsustainable Long-Term Path 90% Percent of GDP 80% Current Law with War Drawdown 77 Percent of GDP 70% 60% Source: CBO Current Law with War Drawdown Savings, CRFB calculations 1

3 Debt Held By the Public Debt is Worse if Congress Does not Pay for Changes 90% Percent of GDP 80% Permanent Doc Fix 80 Percent of GDP 70% Extension of Normal Tax Extenders and Refundable Tax Credits 60% Source: CBO, CRFB calculations 2

4 Debt Held By the Public Debt is Worse if Congress Does not Pay for Changes 90% Percent of GDP 84 Percent of GDP 80% Repeal of Future Sequester Cuts 70% 60% Source: CBO, CRFB calculations 3

5 Debt Held By the Public Debt is Worse if Congress Does not Pay for Changes 90% Percent of GDP 86 Percent of GDP 80% Extension of Unemployment Benefits and Bonus Depreciation 70% 60% Source: CBO, CRFB calculations 4

6 War Spending The War Savings Gimmick CBO assumes war spending will grow with inflation, rather than fall as intended $120 $100 Billions Increase Current War Spending With Inflation (CBO Baseline) $80 $60 Reduce Troop Levels as Scheduled $40 $20 President s War Funding Levels CBO s Troop Reduction Schedule $ 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

7 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 6

8 War Spending 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 $160 $140 $120 $100 $80 $60 $40 $20 Billions Planned Troop Drawdown $50 Billion Phony War "Savings" Current War Spending, Inflated President's Budget $50 Billion in Phony Savings ~$600 Billion Slush Fund $ 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

9 Savings to the Federal Budget Timing Gimmick #1 Savings Now Which Cost Later Pension smoothing would reduce deficits in early years but increase them over time $5 Billions $4 $3 $2 $1 $0 -$1 -$ Savings: $17 billion Costs: $13 billion Costs Continue -$3 -$4 Source: Congressional Budget Office, 2/7/14 8

10 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 9

11 Mandatory Sequester Savings 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 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 Billions 10 Year Increase in Savings: $2.1 Billion 11th Year Cost: $2.1 Billion Source: Congressional Budget Office and CRFB staff calculations 10

12 Savings to the Federal Budget 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 $50 Billions End of the 10-year budget window $40 $30 $20 $10 $0 -$10 -$20 -$30 10-Year Savings from Repealing LIFO: $114 billion 10-Year Costs From a 1% Corporate Rate Cut: $113 billion Debt Impact Costs Continue: ~$10 bn/yr Source: CRFB staff calculations based on CBO estimates. For simplicity, numbers exclude interest savings. 11

13 Cumulative Costs The Harm in Offsetting 1 st -Year Costs with 10 th -Year Savings Accrued interest from waiting 10 years could leave a third of a bill s costs unpaid. 40 Billions 35 Rising Costs from Accumulated Interest $25 billion costs $25 billion savings 10 5 $8.4 billion interest Note: Graph assumes $25 billion in 2015 costs paid for with $25 billion of savings in

14 For More Information, Contact Lydia Austin at or