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A Project of The Annenberg Public Policy Center

Dueling Fiscal Cliff Deceptions

A fog of misinformation has settled on the fiscal cliff, as both House Speaker John Boehner and Treasury Secretary Timothy Geithner have traded conflicting, misleading and false statements in recent days on the president’s deficit-reduction plan:

  • Geithner falsely claimed on “Fox News Sunday” that the president’s proposals to slow Medicare growth are “not shifting costs to seniors.” There are four proposals that would increase costs to some seniors by $32.9 billion over 10 years, beginning in 2017, including higher premiums and new fees and surcharges.
  • Boehner, also on Fox News, wrongly stated that the administration has proposed “$400 billion worth of unspecified cuts.” The administration has itemized nearly $600 billion worth of what it calls “cuts and reforms to mandatory programs” — half of that from Medicare.
  • Geithner exaggerates when he says the ratio of spending cuts to tax increases is “roughly 2 to 1.” The administration’s $3 trillion in “spending cuts” includes more than $800 billion on two wars financed by deficit spending and already set to end, and tens of billions in new or higher fees and surcharges described as “reforms.”
  • Boehner and other GOP leaders claimed in a letter to Obama that the president’s “proposal calls for $1.6 trillion in new tax revenue, twice the amount you supported during the campaign.” But the fact is that Obama’s fiscal 2013 budget proposal calls for $1.6 trillion in new tax revenues — which his opponent, Mitt Romney, attacked during the campaign.
  • Boehner repeatedly (and falsely) says the president’s fiscal 2013 budget plan will create “trillion-dollar deficits for as far as the eye can see.” It’s true the fiscal 2013 deficit is projected to be close to $1 trillion, but annual deficits would fall each year thereafter — dropping to $488 billion by Obama’s final year in 2017.

There is also much confusion on what exactly is in the president’s plan — despite Geithner’s briefing to Republican leaders and their staffs on Nov. 29.

Boehner says the administration has proposed more in new stimulus spending than it proposes in spending cuts. His office says the new stimulus spending could exceed $600 billion but the president proposes only $400 billion in spending cuts. The administration tells us that the stimulus package would not exceed $200 billion.

Obama’s Plan: Neither Painless nor Lacking Specifics

Geithner and Boehner have been the point men for their respective sides of the fiscal cliff debate.

Geithner briefed Republican leaders on Nov. 29 and made multiple TV appearances on Dec. 2 to talk about the president’s plan — which we detail in our Nov. 30 article, “Facing Facts on Fiscal Cliff.”

Geithner and Boehner both appeared on “Fox News Sunday” and each provided misleading information about the Obama administration’s proposed plan.

Geithner claimed that the president’s deficit reduction plan is about “strengthening Medicare, not shifting costs to seniors.” However, the president’s plan does shift some costs to seniors — mostly to higher-income beneficiaries, but also for all new beneficiaries.

There are four proposals, contained in both the president’s 2011 deficit-reduction plan and his fiscal 2013 budget, that would increase costs to seniors by $32.9 billion over 10 years. All four proposals would begin in 2017 — after Obama leaves office:

  • Expanded means testing for Medicare Parts B and D Premiums. The administration proposes to increase premiums under Medicare Part B (medical insurance) and D (prescription drugs) for higher-income seniors by 15 percent and freeze the high-income thresholds at current levels “until 25 percent of beneficiaries under parts B and D are subject to these premiums.” In 2012, only 5.1 percent of Part B enrollees and 3 percent of Part D enrollees pay higher premiums based on income, according to the Kaiser Family Foundation. The current thresholds for higher premiums are $85,000 for individuals and $170,000 for couples. Kaiser estimates that the income thresholds for paying higher premiums by 2035 will be equivalent to about $47,000 for individuals and $94,000 for couples “in today’s adjusted inflation dollars.” Cost to seniors: $28 billion over 10 years (pages 34-35).
  • Increased Medicare Part B deductible for new beneficiaries. The administration would increase the deductibles paid by new beneficiaries by $25 in 2017, 2019 and 2021. Cost to seniors: $2 billion over 10 years (page 35).
  • A copay for Medicare home-health care for new beneficiaries. There’s currently no copay. This proposal would create a new copay of $100 for each “home health episode.” Cost to seniors: $350 million over 10 years (page 35).
  • Medicare Part B premium surcharge for new beneficiaries who purchase Medigap coverage. The administration would impose a Part B premium surcharge for new beneficiaries who purchase “near first-dollar Medigap coverage.” Medigap policies cover Medicare’s out-of-pocket expenses, such as copays and deductibles. The administration’s plan says Medigap provides “less incentive” to make cost-efficient health care decisions. Cost to seniors: $2.5 billion over 10 years (page 35).

As he made the rounds of the other Sunday talk shows, Geithner gave an accurate — but incomplete — accounting of the president’s Medicare proposals. On “Meet the Press,” for example, Geithner said that “we’re proposing to modestly increase premiums for high income beneficiaries of Medicare.” But he did not mention that the president’s plan also raises costs for all new beneficiaries, not just those with high incomes.

For his part, Boehner twice criticized the administration for failing to provide detailed cuts, claiming the administration “put $400 billion worth of unspecified cuts that they’d be willing to talk about.” Geithner said that’s not true, claiming the administration has “proposed $600 billion of detailed reforms and savings, to our health care and other government programs.”

Boehner is wrong.

The president’s deficit-reduction plan, as proposed to Congress in September 2011, itemizes “nearly $580 billion in cuts and reforms to mandatory programs, of which $320 billion is savings from Federal health programs such as Medicare and Medicaid.” Those proposals are also listed in the president’s fiscal 2013 budget proposal in a section, beginning on page 23, titled “Cutting Waste, Reducing the Deficit.”

The Medicare proposals, for example, are a mix of reduced payments to certain providers, including teaching hospitals and post-acute care facilities — as well as the higher premiums and new fees for certain beneficiaries that we mentioned above.

White House spokesman Jay Carney made this point at a press briefing on the day of Geithner’s meeting with Republican leaders.

Carney, Nov. 29: [T]he President has put forward, in September of 2011 with his proposal to the so-called super committee, in his budget in February of 2012, very specific spending cuts, including savings from health care entitlement programs.

Spending Cuts vs. Tax Increases

Geithner and Obama, however, exaggerate the amount of spending cuts in the president’s plan.

On NBC’s “Meet the Press,” Geithner said, “We have laid out a very detailed plan of spending cuts, $600 billion dollars in spending in mandatory programs over 10 years.” The president made the same claim in a Dec. 4 interview with Bloomberg News, saying his proposal has “$600 billion in additional cuts in mandatory spending.”

It’s true that there’s nearly $600 billion in estimated savings from mandatory programs: $326 billion in health programs, including Medicare and Medicaid, and $254 billion in other programs, such as farm subsidies. But not all of these are “spending cuts,” and the administration’s own deficit-reduction plan doesn’t label them as such — instead calling them a combination of “cuts and reforms.”

There are tens of billions in new fees and surcharges and increased premiums in Medicare alone. Table S-10 of the revised fiscal 2013 budget proposal outlines numerous other new and higher fees under the section titled “Mandatory Initiatives and Savings.”

“Fox News Sunday” host Chris Wallace asked Geithner about the spending cuts-to-tax increase ratio in the president’s plan, and the Treasury secretary replied, “roughly 2 to 1.”

When we asked how Geithner arrived at his 2-to-1 ratio, Treasury told us there is roughly $1.6 trillion in new tax revenues (which is not in dispute) and $3 trillion in spending cuts — which is not quite 2-to-1, even if you accept the administration’s definition of cuts.

In addition to the $600 billion, the list of $3 trillion in “spending cuts” provided to us by the administration includes:

  • The caps on discretionary spending approved in the Budget Control Act of 2011, which will reduce future spending by an estimated $1 trillion. Republicans don’t view these as new spending cuts, because these were approved in exchange for raising the debt ceiling in 2011 and they are not part of the current negotiations.
  • An estimated savings of more than $800 billion from ending the wars in Iraq and Afghanistan. But as we have written before, Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, called this a “gimmick,” because the wars were financed by deficit spending and already set to end.
  • About $600 billion in reduced debt service payments.

The administration’s $3 trillion in “spending cuts” also does not take into account its proposal for at least $200 billion in new stimulus spending — which, obviously, reduces the net savings.

Treasury declined to give us a detailed list of proposals for new spending, although it did confirm published reports that some of the elements of the stimulus plan could include an extension of the Social Security payroll tax holiday ($110 billion), infrastructure spending ($50 billion) and an unemployment benefits extension ($30 billion).

The Republicans, however, are also playing fast and loose with the facts when they calculate the ratio of spending cuts to tax increases.

In a Dec. 3 letter to the president outlining the GOP counterproposal for deficit reduction, Boehner and other GOP leaders said there is “four times as much tax revenue as spending cuts” in the president’s proposal.

The GOP math works like this: Obama’s proposal includes $1.6 trillion in new tax revenue and roughly $400 billion in spending cuts. In an email to us, Boehner spokesman Brendan Buck said that “when Sec. Geithner made his proposal to us, the number he used – repeatedly – was $400 billion.” However, as we mentioned earlier, on several Sunday talk shows, Geithner said the total savings comes to $600 billion over 10 years.

In part, the discrepancy is a matter of language. Republicans are saying “spending cuts” while Democrats are saying “savings,” “reforms” and “spending cuts.” But the more substantial difference between the Democrats’ and Republicans’ spending cuts-to-tax hike ratios is that Republicans do not count the $1 trillion in discretionary spending cuts agreed to in the Budget Control Act of 2011. The White House argues those are part of the ongoing negotiations to resolve a deficit crisis. Nor does the GOP include the $800 billion “saved” from ending the wars in Iraq and Afghanistan.

Stimulus Spending: How Much?

The two sides also disagree on how much the president’s plan would provide in new stimulus spending.

On Fox, Boehner claimed that “all of this stimulus spending would literally be more than the spending cuts that he was willing to put on the table.” Geithner said that is “not true.”

Who’s right? It’s hard to say since, as we mentioned earlier, the Obama administration has not provided specifics on its stimulus package.

Boehner’s claim assumes, again, that the Democratic plan is for $400 billion worth of spending cuts. His office released a comparison of the Obama and GOP plans that shows the administration seeking anywhere from $287 billion to $617 billion worth of new stimulus. The White House says it is seeking $200 billion.

According to the calculations provided by Boehner’s office, the White House offer included $110 billion for a payroll tax extension; $30 billion for unemployment insurance; $27 billion for stimulus tax extenders; $25 billion in unpaid expense related to the so-called “doctor fix” to prevent a cut in Medicare payments to doctors; and anywhere from $95 billion to $425 billion in infrastructure spending. According to Buck, in Geithner’s meeting with Republican leaders, the way White House officials described the infrastructure spending was $50 billion in the first year of a multi-year bill, and $25 billion above baseline for five years after that. “One could calculate that at $425 billion,” Buck said.

A Treasury official told us, however, that Obama’s proposal includes “around $200 billion in short-term measures to strengthen the economy and create jobs.”

“This could include a variety of measures such as infrastructure, the payroll tax, unemployment insurance benefits, refinance, and extension of 50 percent of bonus depreciation — and would very likely be a mix of revenues and spending,” the official said. “It’s not possible to allocate these measures until we know what this mix would look like, but it’s unlikely that they would greatly change the ratio. In addition, these are short-term jobs measures that would be in place only on a temporary basis. In thinking about the mix of revenues and spending, it makes more sense to focus on the permanent policies in the package.”

We can’t fact-check what was or was not offered in a closed-door session, but that explains the difference between the stimulus-to-spending cuts ratios cited by the opposing camps.

Double the Revenue?

In their letter to Obama, GOP House leaders also claimed that Obama’s “proposal calls for $1.6 trillion in new tax revenue, twice the amount you supported during the campaign.”

Did Obama renege on a campaign promise to raise just $800 billion in new revenue, and double his proposal during the fiscal cliff negotiations? In short, no. Obama has not wavered from his 2013 budget proposal, which included roughly $1.6 trillion in new revenues over 10 years.

Boehner’s spokesman said that during the campaign Obama only ever talked about allowing the Bush tax cuts to expire for upper-income earners — which would only generate about $850 billion.

“The average American (as well as every reporter I’ve quizzed on this) would say that the President campaigned on allowing the top rates expire,” Buck wrote to us in an email. “You’d be hard pressed to find him talking about going beyond that when campaigning. (He also regularly calls on Congress to pass a bill that does nothing more than allow top rates to expire.) That yields about $800 billion in revenue. He’s now asking for double that.”

Actually, just raising the rates on the top two income brackets is estimated to generate $442 billion over 10 years, according to the president’s budget plan (page 219). But there’s more to the Bush tax cuts than just marginal rates. Allowing all of the Bush tax cuts to expire for upper-income earners — as Obama has proposed — would also include such things as higher capital gains and dividends tax rates. Together, those come to about $850 billion.

But there was more revenue than that in Obama’s budget plan. For example, Obama proposed to reduce the value of itemized deductions and other tax preferences to 28 percent for families with incomes over $250,000. That is expected to generate $584 billion over 10 years — even more than raising the top tax rates (page 220).

It’s true that Obama made little or no mention of those particulars on the 2012 campaign trail — focusing instead on “everybody … doing their fair share” and “a balanced approach that says folks like me can pay a little bit more and go back to the Clinton rates.”

Neither, however, did Obama change course or distance himself from the fuller fiscal plan that he outlined in his budget.

More often, Obama vaguely said, “I’m not going to ask middle-class families to give up their deductions for owning a home, or raising their kids, or sending their kids to college just to pay for another millionaire’s tax cut.” He made no mention of upper-income deductions.

“He was campaigning on what he was asking for in the budget,” said Roberton Williams of the nonpartisan Tax Policy Center. “He may not have outlined the particulars during the campaign. But we always knew that was his plan, and that it was more than just tax rates.”

Mitt Romney knew. In fact, the Republican presidential nominee campaigned against it. In an April 17, 2012, press release, the Romney campaign warned: “In 2013, President Obama Will Usher In ‘One Of The Biggest Tax Increases In History’ By Passing $1.5 Trillion In New Tax Hikes.”

In other words, Obama may not have detailed his proposal to reduce the value of itemized deductions and other tax preferences to 28 percent for families with incomes over $250,000. That’s quite a mouthful for a campaign speech. But Obama never backed off his 2013 budget plan, which did lay out that proposal, and others, in greater detail.

Trillion-Dollar Deficits?

Lastly, Boehner falsely claimed on “Fox News Sunday” that the president’s budget will create “trillion-dollar deficits for as far as the eye can see.” He repeated the claim at a Dec. 5 press conference.

It’s true that the fiscal 2013 deficit under the president’s proposed budget would be close to $1 trillion, but the deficit would fall steadily after that for the next three years — dropping to $488 billion by Obama’s final year in 2017, according to the nonpartisan Congressional Budget Office.

Boehner, Dec. 2: We have a debt burden that’s crushing us, and it is — you look at the president’s budget, we’ve got trillion-dollar deficits for as far as the eye can see.

The federal government has run trillion-dollar deficits for four consecutive years, so it’s not partisan hyperbole when he speaks of “a debt burden that’s crushing.” However, he does misstate the facts when he speaks of future deficits.

In its analysis of the president’s proposed budget for fiscal 2013, CBO projects an end to the string of $1 trillion deficits in 2013 — but just barely. CBO estimates the deficit at $977 billion in 2013 and dropping every year thereafter until it reaches $488 billion by 2017. At that point, deficits are projected to rise again — but not reach $1 trillion. The highest the deficit would reach from 2014 to 2022 would be $728 billion in 2022. (See Table 1.)

— Eugene Kiely and Robert Farley