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Fun With Budget Windows

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"Fun With Budget Windows"

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I guess because it sounds good, Barack Obama has promised to make health care reform “deficit neutral.” But as David Leonhardt explains, that doesn’t necessarily mean what you might think it would mean:

First, a little background: Congressional bills are typically based on a 10-year budget time frame. The Congressional Budget Office looks at the cost of the bill over the next 10 years (new spending and tax cuts) and the revenue it raises (spending cuts and tax increases). The difference between those two determines whether the bill adds to the deficit, reduces it or is “deficit neutral.”

This is a fundamentally arbitrary standard to meet, and policies with all kinds of different budget implications can meet the standard. To illustrate, the following is an example of a hypothetical initiative that scores as deficit neutral:

deficit

This, by contrast, scores as causing a deficit:

deficit2

In the real world, of course, the second program leaves the country with a very small and manageable deficit. Something that it would be nice to fix, but could also be fixed easily. The first program, by contrast, actually implies a giant long-term deficit. You’ve picked a revenue source that’s totally inappropriate to the anticipated growth in costs. Or maybe you’ve designed a program whose cost growth is totally out of proportion to the among of money you’re prepared to spend on it. It just looks neutral because of the way the “window” works.

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