President Obama's budget also replaces the across-the-board spending cuts known as the sequester with smarter ones, making long-term reforms, eliminating actual waste and programs that are no longer needed.The sequester, remember, is about $1.2 trillion in cuts in and of itself over 10 years, counting interest savings, and since the sequester is baked into current law, replacing them cannot count as additional cuts. Don't tell anyone, but the president's budget actually proposes a sum (including interest savings but excluding chained CPI savings) of total cuts slightly smaller than the $1.2 trillion. Rather than the sledge-hammer approach, here's how the budget's cuts work out:
Spending cuts: The budget cuts $200 billion from discretionary spending, balanced evenly between defense and domestic programs. It also includes $200 billion in cuts from mandatory spending by reducing farm subsidies and reforming federal retiree benefit programs. It also achieves $210 billion in savings from reduced interest payments on the debt and $400 billion in health savings aimed at cutting waste and fraud and strengthening Medicare.It should be noted that there is no benefit cut in Medicare ($306 billion of the $400 B) in order to achieve those savings. Here's how the President's budget describes the savings:
... the Budget includes a robust package of proposals that modify Medicare provider payments totaling $306 billion over the next 10 years. These include a number of measures detailed in Table S–9 (see Summary Tables section of this volume), including a proposal to align Medicare drug payment policies with Medicaid rebate policies for low-income beneficiaries, allowing Medicare to benefit from lower drug prices. This change alone will save $123 billion over the next 10 years.So the president wants to replace the sequester hatchet job largely with cuts to subsidies to big agribusiness, $100 billion in defense cuts, and cracking down on drug companies as well as Medicare waste and fraud. How un-progressive of him!
The only additional, non-sequester replacing spending reductions (as well as some revenue increases), of course, come from the Left's Voldemort - that thing that no liberal must ever speak of: chained CPI. There is a total of $230 billion in spending reductions from switching to chained CPI, a more accurate measure of inflation, while protecting the most vulnerable and exempting means-tested programs (including Supplemental Security Income, and poverty level calculations). We will discuss the protections for vulnerable populations against chained CPI in detail in an upcoming post, but for the purposes of this post, the chained CPI results in roughly $130 billion in spending reductions over the 10-year window, while raising an additional $100 billion in revenue (indexing to chained CPI will readjust marginal tax brackets to slightly lower points).
Speaking of revenue, the president's budget asks for another $583 billion in revenue targeted at making the wealthy pay their fair share in the following ways:
- Limit deductions for the top 3% of households to 28% of their income. This still allows for deductions, but not for tax avoidance.
- Buffet rule: ensure that millionaire households pay at least 30% of their incomes in taxes.
As I'm always fond of doing at the end of my somewhat mundane math pieces, let's add it up. The president is proposing, in his budget (compared to current policy):
- $130 billion in net new spending reductions, if that much (actually less since part of that also goes to replace the sequester).
- $680 billion ($580 from above plus $100 billion from chained CPI adjustments) in net new revenues.