Why ending the Afghanistan war doesn't save more money

John Boehner is "appalled" at the president's budget proposal, presented last week by Treasury Secretary Tim Geithner. Sen. Lindsey Graham called it a "joke." As for me, I am shocked, shocked that there are hard lines being taken at the start of a negotiation. And some of the stuff they are starting to talk about is funny numbers, making budget analysts crazy.

When a deal comes, and I believe it will, the numbers are likely to continue to be somewhat funny, because neither side wants to leave itself open to political criticism. In the spirit of badly-needed bipartisanship, let's take two examples.

The Republican side rejects the notion of raising tax rates on the rich and says it has options for increasing revenues without doing so. The administration, and the non-partisan Tax Policy Center, estimate that letting tax rates on incomes over $250,000 return to their pre-Bush tax cut level could raise $1.6 trillion over the next decade, a substantial contribution to reaching the goal of $4 trillion in overall deficit reduction.

Republicans, terrified of the wrath of Grover Norquist, refuse to go there. Instead, they say, with changes in the tax code, particularly the reduction or elimination of tax breaks, they can raise revenues. We're talking here about things like deductions for mortgage interest, state and local sales taxes, charitable contributions, and the tax-free premiums employers contribute toward employee health insurance. Unfortunately, as far as anyone knows, this is a mystery calculation, as they have put nothing specific on the table.

It's pretty understandable that they don't want to be specific; many of these tax breaks help the very middle class families the Republicans claim to be defending. But there is another reason the Republicans are avoiding specifics. Unless those middle class tax breaks are eliminated altogether, the Center on Budget and Policy Priorities estimates that savings from lowering what are called "tax expenditures" will never add up to $1.6 trillion or even a cool trillion. (I love Washington; so much funny language, so little time. One of my former bosses at the Office of Management and Budget hated to call a budget cut a "cut." Instead, the boss would refer to budgetary "plus ups" and budgetary "plus downs." Really!)

So the Republicans' numbers don't add up to much -- not a real contribution on the revenue side. But without details they can claim, "We did too put revenues on the table."

The Obama administration can make things up, too. For example, the president's budget proposal, sent to Congress in February and reiterated by Secretary Geithner, invents budget savings that are not there. Specifically, I am talking about the $800 billion the administration claims as "war savings," or, if you like, a "peace dividend" over the next 10 years. Except, funny thing, the administration's budget does not forecast war spending past the next five years. And the numbers for those five years ($44 billion per year) are notional -- that is, they are not based on any programs or plans for prosecuting the war; they are a placeholder. The administration actually has no idea what war costs will be in the future (the Bush administration used the same budgetary dodge), but we do know that they plan to pull the troops out of Afghanistan. Between leaving Iraq and those plans, war costs have already been falling fast, from nearly $180 billion to just under $160 billion, to just over $120 billion to $88 billion over the past four budgets.

With troops coming home next year, they are likely to continue to fall until they disappear, absorbed into the regular Pentagon budget. The back of my envelope (which is as good as the number the administration uses) says war spending will disappear by the FY 2015 budget submission (that's the year after next). Secretary Geithner tried to argue this was not a gimmick, but it is. (Rep. Paul Ryan used the phony savings, too, in his budget proposal earlier this year.)

In sum, from a budgetary perspective there is no war spending we can "save" over the next decade. But, rather than set the Pentagon on the trajectory toward real reductions that it needs to make, the administration is just pocketing phony savings to get to its goal.

So there we are. The Republicans make up savings for which they provide no details. The administration makes up savings, with details, that don't exist. Maybe that's enough to get us through the "fiscal pothole" we face in January. But it does not bode well for what happens to real federal revenues and spending after that.

Coda: The Republicans put something on the table Monday that they are calling a "counter-offer." But they have provided little detail, so we don't know whether they plan to count the same phony war savings.



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