Federal deficit: Trail of broken promises

In the October 29, 2009 CNNMoney article "Federal deficit: Trail of broken promises," Jeanne Sahad reports that "Republicans and Democrats rage about the long-term deficit, as if they had nothing to do with it. But both parties undermine efforts to get it under control."

NEW YORK (CNNMoney.com) -- When it comes to figuring out what has caused the country's record accumulation of debt, just about every politician in Washington has a theory.

The theories usually boil down to this: The other guy did it. The other party's White House. A previous Congress. You get the picture.

In reality, growing the deficit has been very much a bipartisan effort. Members of Congress from both parties and presidents past and present have all contributed to the problem.

And it is a problem. By 2019 the total debt accrued over the past several decades is on track to approach an unhealthy 82% of gross domestic product. That's one reason why those who own U.S. debt and credit ratings agencies will be looking for lawmakers to put together a plausible deficit-reduction plan in the next few years. (Clock is ticking on debt ceiling.)

But if Congress and the president are going to stick to it, they better curb the budget trickery. Here are 5 common tricks that undermine fiscal responsibility.

Great idea! Let's ignore it.
The trick: Bypass rule to rein in spending and then overturn it

In 1997, Congress passed a provision that aimed to limit overall Medicare spending. When spending exceeds a certain target, an automatic reduction in physicians' reimbursement fees kicks in -- unless lawmakers act to block the reduction.

And they do, almost every time a cut to doctors is in the offing.

They usually don't bother to cut spending or raise revenue elsewhere to make up for it. And when they do, they aren't exactly realistic about it.

Four years ago, they decided to pay for rescinding a cut by promising to cut rates even more steeply in the future, said Donald Marron, an acting director of the Congressional Budget Office during the last Bush Administration.

Well, welcome to the future. Those steeper rate cuts aren't flying either. Lawmakers now want to pass a permanent "fix" so that physician payment rates don't drop. The estimated cost of doing so: $247 billion over 10 years.

The proposal was voted down last week in part because there were no provisions in the bill to pay for the cost. But don't expect that to be the end of it.

How about a quickie?
The trick: Enact a one-year "fix" that really fixes nothing

Few lawmakers want to see physician rates cut. They need physicians' support for health reform and there is concern that more physicians would refuse to treat Medicare patients if their rates are cut further.

So lawmakers may just pass another one-year fix to prevent near-term cuts, just like they've done in years past.

The one-year "fix" for perennial issues makes the cost of what Congress is doing look less expensive because well, it's only for one year, right?

The classic example is how Congress deals with the pernicious Alternative Minimum Tax. Without congressional action, an increasing number of middle class families will have to pay the tax, originally created to extract tax payments from the wealthy.

So every year Congress enacts a "patch" to protect those middle-class families. Those one-year patches have recently cost in the neighborhood of $70 billion. A permanent patch, which President Obama has called for, would cost at least $448 billion over 10 years, according to the Congressional Budget Office.

Let's play make-believe
The trick: Count on future taxes everyone knows will never be collected

The AMT patches are not paid for through reduced spending or increased revenue elsewhere.

The argument is that the AMT was never supposed to hit so many people and generate so much revenue. So why pay for the loss of revenue that was never supposed to be collected in the first place?

It's a good theory. The problem is that Congress, in deciding which policies to pursue, uses budget and deficit projections that assume the AMT will raise lots and lots of revenue.

As a result that phantom AMT revenue makes the deficit look better than it is.

While the estimated cost of permanently patching the AMT is $448 billion, the real price goes up by hundreds of billions if it's done in conjunction with extending the 2001 and 2003 tax cuts. And odds are high they will be extended.

This is just temporary. Honest.
The trick: Call a tax cut or spending hike temporary

Like the one-year fix, implementing a "temporary" tax cut or spending increase often disguises the true cost, since there will be pressure to make the measure permanent -- or to "temporarily" renew it every year.

"There's a ton of effort to get things into law because once there, they're hard to get rid of," said Marron, who is now a visiting professor at the Georgetown Public Policy Institute.

The 2001 and 2003 Bush tax cuts are a good example.

No one really expected the cuts to expire, even though they're slated to do so by 2011. In fact, President Obama has called for them to be made permanent for the majority of Americans. The cost: $2.3 trillion in forgone revenue over the next 10 years.

We'll pay for everything ... except some things
The trick: Promise to pay for some tax cuts and not others

In a speech this week, Christina Romer, head of Obama's Council of Economic Advisers, pointed to research that found nearly half of the long-run fiscal shortfalls is due to the policies that cut taxes and increased spending under the Bush administration.

"Obviously, we can't go back eight years and make more responsible choices," she said.

Well, yes, the past is past.

But what about future choices? Obama has promised to pay for any new tax cuts or spending increases he proposes. Yet he is not calling on Congress to pay for his $2.3 trillion proposal to extend the Bush tax cuts.

By not doing so, he joins a not-so-select club of politicians, according to Diane Rogers, chief economist at the deficit watchdog group Concord Coalition.

"[T]he clever idea to hide the permanent costs of spending or tax cuts by making them temporary, and then later extending them while refusing to pay for the costs of extending them ... is something government policymakers have been practicing in a bipartisan manner for awhile," Rogers wrote in her blog EconomistMom.com.