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Posted at 6:00 AM ET, 02/17/2011

Obama's misleading language on debt reduction in the 2012 budget

By Glenn Kessler

"What my budget does is to put forward some tough choices, some significant spending cuts, so that by the middle of this decade, our annual spending will match our annual revenues. We will not be adding more to the national debt. To use a sort of an analogy that families are familiar with, we're not going to be running up the credit card anymore. That's important, and that's hard to do, but it's necessary to do."
--President Obama, Feb. 15, 2011

A president has a difficult job trying to explain the federal budget to ordinary Americans. The numbers are large, the concepts are obscure, the details mind-numbingly boring.

President Obama's 2012 budget, which he says begins to attack the deficit problem in a responsible way, has been attacked for relying on the usual bag of budget gimmicks to appear to cut spending. To some extent, this is a time-honored tradition by both parties. President George W. Bush produced budgets, even as late as 2008, that predicted the elimination of the budget deficit some time in the future. It never happened.

Obama's statement above, made at his news conference Tuesday, relies on another time-honored cliché -- the family credit card. How good a job did he do in explaining what's in his budget?

The Facts

By any common-sense standard, the president is saying that by the "middle of the decade" -- 2015 -- there will no longer be a deficit. The key phrase is that "we will not adding more to the national debt."

But then turn to Table S-1 of the budget. The deficit in 2015 is $607 billion. In 2016, $649 billion. It keeps going up and up until 2021, the last year of the budget blueprint, when it shows a deficit of $774 billion.

Endless deficits mean more debt. And indeed, the debt climbs and climbs. In 2012, the total national debt would be $16.6 trillion. In several years -- 2015 -- it would be $19.8 trillion. By 2021, it would be $26.3 trillion. (This is the combined debt -- debt carried by the public and also that held by other government agencies, such as the Social Security Administration's Treasury securities, held to redeem promises of years of Social Security benefits.)

The president's answer seemed so out of sorts with reality that a reporter, Chip Reid of CBS News, called him on it and started reading out the annual deficit numbers. He asked: "How can you say that we're living within our means?"

In response, the president did a better job of explaining himself.

"We still have all this accumulated debt, as a consequence of the recession and as a consequence of a series of decisions that were made over the last decade. We've racked up a whole bunch of debt, and there's a lot of interest on that debt," the president said. "So in the same way that if you've got a credit card and you've got a big balance, you may not be adding to principal, you've still got all that interest that you've got to pay, well, we've got a big problem in terms of accumulated interest that we're paying. And that's why we're going to have to whittle down further the debt."

In other words, the president admitted he was excluding the interest on the debt when he declared "we will not be adding more to the national debt." He was talking about a budgetary concept known as "primary balance," in which the government spends no more than it collects, not counting interest payments.

A table in the budget, S-4, purports to show how this figure eliminates the "primary deficit" -- or what might be called the operating deficit -- by 2017 and then moves into surplus. (That's actually a bit further in the future than "middle of the decade," but okay.) Table S-1 also shows that debt held by the public, as a percentage of the gross domestic product, remains stable at about 76 to 77 percent starting in 2015. That's another way to measure whether the deficit is getting under control.

Senior administration officials, in interviews, pointed to Obama's second statement as the most definitive explanation of the administration's thinking. They noted that speech writers refused to let the president use terms such as "primary balance" because it would confuse people rather than clarify matters, and they claimed that achieving primary balance would be a significant fiscal achievement. They also argued that one should not focus on just one isolated statement, but the full explanation from the whole news conference.

We will note that it took a follow-up question from a diligent reporter to yield that right answer. The president's first explanation was not so clear -- and in fact was fairly misleading.

As for the president's claim of "significant spending cuts," we have discussed the problem with ten-year estimates as a guide to what will happen in the future. The administration's economic assumptions are more optimistic than many private forecasts, allowing it to claim additional government revenue that may not materialize. The administration is also counting on winding down the wars in Iraq and Afghanistan, saving hundreds of billions of dollars. Those assumptions, more than any real cost-cutting, are responsible for eliminating the predicted "primary deficit."

The Pinocchio Test

A president has a responsibility to be straight with American people, especially when talking about the budget. The money used to pay interest on the debt by 2012 will amount to about 13 percent of the overall budget -- almost double the amount spent on nondefense discretionary spending that year. In fact, interest expense in 2021 would only be somewhat less than the money spent on national security.

We agree that the president's fuller explanation began to acknowledge that he was not counting interest on the debt. But his initial statement -- "We will not be adding more to the national debt" -- was not correct. The president kind of hinted that he was talking about primary balance when he said "our annual spending will match our annual revenues." But he should have gone further and added the words, "not counting interest on the debt."

We are not expecting perfection in public statements by politicians. This came close to being a three-Pinocchio ruling, but the president's second attempt somewhat mitigated the problems with his initial statement.

Two Pinocchios

(About our rating scale).

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By Glenn Kessler  | February 17, 2011; 6:00 AM ET
Categories:  2 Pinocchios, Barack Obama, Economy  
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Comments

Even the WaPo is on the bandwagon of the Liar-in-Chief.

Posted by: hz9604 | February 17, 2011 6:32 AM | Report abuse

It's significant that even WaPo has been getting more critical of the man they and the MSM worked so diligently to elect.

obama is absolutely clueless about all things financial. He says he's cutting the budget yet still has programs like high speed rail in it. All of his freezes are on salaries that were increased massively since he took office. There are more government workers making over $100,000 a year by far than any time in history. He's been on a 2+ year spending spree and it's time the Republicans and the American people do an intervention.

Posted by: cathyjs | February 17, 2011 6:52 AM | Report abuse

"But he should have gone further and added the words, "not counting interest on the debt."
____________________
Weasel words. What he should have done is admit that the deficits and debt continue unabated. How can you not count interest on the debt.

Posted by: amazd | February 17, 2011 7:13 AM | Report abuse

If we could ignore paying interest on the national debt we wouldn't have a budget problem.

Is that his plan?


Someone should tell the Chinese.

Posted by: cautious | February 17, 2011 7:23 AM | Report abuse

"In other words, the president admitted he was excluding the interest on the debt when he declared "we will not be adding more to the national debt." He was talking about a budgetary concept known as "primary balance," in which the government spends no more than it collects, not counting interest payments.
____________________________
This is lying, plain and simple. "Misrepresentation" and "misleading" don't come colse to describing the outright lies here.

"Starting in 2014, net interest payments will surpass the amount spent on education, transportation, energy and all other discretionary programs outside defense. In 2018, they will outstrip Medicare spending. Only the amounts spent on defense and Social Security would remain bigger under the president's plan."

Posted by: amazd | February 17, 2011 7:25 AM | Report abuse

Two pinocchios for both Obama and Ryan? Obama got off easy by comparison.

Ryan scored two for *implying* that $37 trillion was a reasonable baseline for federal spending over the coming decade, as the current year's $3.7 times ten. I say implying, because that's what Fact Checker thought. He merely called spending on top of $37 trillion "new", and math supports that claim. He didn't say $37T was the limit of reasonable spending levels. Two pinocchios was steep.

Two for Obama for a significant exaggeration, $600+B deficits "not adding" to the debt, was fair.

Ryan's public statements may be comparably sneaky to Obama's, but Ryan's underlying policy goals are much better.

For reference, current projections are $47T if nothing changes, $43T was recommended by Obama's Debt Commission, and Obama's plan calls for $46T.

What's a reasonable level of spending?

Of the four figures above, $43 trillion's probably the most reasonable. Some serious spending reductions that many would say don't go far enough are in that commission's report.

Ryan used scary language to distort something that is legitimately scary; Obama used comforting and disarming language to distort something scary.

Both guys are guilty of distortions, as policitians are often wont to do. But Ryan's got the policy right and Obama doesn't.

Posted by: angrydoug1 | February 17, 2011 7:25 AM | Report abuse

The Budget and budget process are phony from start to finish.

Why doesn't someone in Congress stand up and question why every federal agency is automatically given every penny they request based on the prior year spending. Agencies should be required to REDUCE their spending by eliminating waste, redundancy and non-essential employees.

This needs to be done with the White House staff also.

Posted by: Hazmat77 | February 17, 2011 7:41 AM | Report abuse

who checks Glenn's fact-checking?

Posted by: Hazmat77 | February 17, 2011 7:44 AM | Report abuse

who checks Glenn's fact-checking?

Posted by: Hazmat77


Go for it!

Posted by: LostKenyanIdiot | February 17, 2011 7:48 AM | Report abuse

Gee - Obama lied to America....AGAIN...wht a surprise!

Posted by: Realist201 | February 17, 2011 8:03 AM | Report abuse

"Misleading language?" More like stone cold pathological liar.

Posted by: wewintheylose1 | February 17, 2011 8:03 AM | Report abuse

Republicans thought they could BORROW and SPEND for 2 UNFUNDED wars and 3 UNFUNDED tax cuts for Billionaires - and never have to pay interest.
Republicans are terrible at governing!

Posted by: angie12106 | February 17, 2011 8:27 AM | Report abuse

@Hazmat77

It is the fundemental flaw in our budgetary system. It rewards beauracracy and punishes efficiency for no other reason than its easy. It's Akin to someone who could get $1,000 back by itemizing his taxes, but settles for $200 by using the 10-40EZ. However, if congress audited every agency every year to justify their budget request that is all congress would have time to do. No other issues would ever get addressed.

I've long been a proponent of a three year budget cycle. This way they would have time to do an more thorough review and Agency's could do true multi-year capital planning like the corporate world. However, Congress would never do it becuase with the House having two year terms, every other Congress would get no say in budget matters. Changing the term lenth of the House of Representatives is not an easy task as it would require a Constitutional Amendment. Congress doesn't even want to broach the subject becuase if length of term was going to change, the public would almost certainly demand term limits at the same time.

Posted by: akmzrazor | February 17, 2011 8:35 AM | Report abuse

When will you tell us what percentage of the American people would regularly use Obama's high-speed rail vs. what percentage of Americans would pay for it?

Posted by: llrllr | February 17, 2011 9:05 AM | Report abuse

@angie12106

This goes to the heart of the problem with living on edge. It's akin to living paycheck to paycheck but still wanting the buy that new pair of designer shoes. Let me address the wars first and then tax cuts.

Niether war was planned to cost as much as it did. Early mistakes in the post-Hussien era, which I totally fault Bush for, caused Iraq to spiral into Chaos. That dragged us into a drawn out engagement that saw us spending billions to stabalized an infrastructure wrecked by insurgents. As resources got diverted to Iraq, Insurgents in Afganistan capitalized on an oppourtunutiy and reversed the course that engagement. That prompted us to pump more cash into that engagment too. In the middle of all this Katrina happened. We had to emergency borrow and spend just keep status quo and borrow even more to get ahead of the problem.

If everything was smooth and predictable over the next decade, Obama's budget plan would likely do everything he claims it will. But it leaves no room for error. Another major natural disaster or an energy crisis prompted by Middle East instability and his whole plan goes out the window. But what does he care, even if he gets re-elected he has a 50-50 shot of laying the burden on the next President to solve.

As for Billionaire tax cuts, that is a mischaracterization. There are two groups popularly called the wealthy. Incomes of between $250K/year and $1M/year and those over $1M/year. Nearly 1/3 of the first group are people who own their own business that file as individuals instead of businesses becuase to navigate corporate tax law you need to be an accountant or pay for a professional accountant. About 4% of the higher bracket also falls into that category, so it's not just billionaires were talking about here. Its people who give jobs to other people.
Next lets looks at what acctually got cut. The first group's rate got cut from 36% of thier taxable income to 33% and the second group got dropped from 39.5% to 35%. Both groups are still paying at least 1/3 of their income in taxes. The second groups reduction only covers the first $5M. The rest is still taxed at 39.5%. For a billionire who makes 100s of millions of dollars in intrest per year, a 4.5% reduction on the first 5 million amounts to net tax burden reduction of less than 1%. In other words Billionaires get hardly any benefit at all.

Now lets look even further. Most of the small business owners in the highest group fall in the between 1M and 5M category. In other words a repeal of the tax break would be felt disproportionately by them than by any billionaire. So as much as the left likes to rail about benefits to the uber rich, the reality is they aren't the ones getting the most benefit.

Posted by: akmzrazor | February 17, 2011 9:23 AM | Report abuse

"It IS the taxes, Stupid"
No its jobs and spending Stupid! Did anyone here really think Obama was going to raise taxes/end the Bush tax cuts? Anyone? Obama is rich all of his friends are rich. I ask once more was anyone here stupid enough to think Obama was going to raise taxes on himself? See what a joke your president is? What that you say? Bush made him do it? Thanks for the laugh that line never gets old!As always you can contact me at work http://www.usa-businessreview.com and yes keep those jokes coming. Just like this one.
The Democratic party has alway been about taking money from the people who earn it and putting it in their own pockets. Some would call them criminals they prefer to be called humanitarians. Some would call what they do stealing they prefer to call it wealth distribution! What a joke Democrats are! Remember a vote for Obama is a vote for evil.

Posted by: Loxinabox | February 17, 2011 10:20 AM | Report abuse

The more borrowed money Obama throws away buying union votes the more jobs we lose.

Since Obama took office, the nation has shed 3.5 million jobs despite a series of unprecedented attempts to stimulate the economy with $1 trillion deficit spending.

btw – the IRS and SSA claim that 8.5 million illegal aliens are working at jobs that required them to supply their employers with bogus SSNs.

Posted by: hunter340 | February 17, 2011 10:58 AM | Report abuse

Sadly, hardly a day goes by that we are not reminded of the horrible mistake we made in November 2008. Obama manages to tell us on a daily basis of the absence of leadership at 1600 PA Ave! That is the result of electing an unexperienced SUIT with teleprompters!

Posted by: wheeljc | February 17, 2011 11:01 AM | Report abuse

Can someone explain who does the country owe the debt to?

Posted by: kishorgala | February 17, 2011 11:44 AM | Report abuse

ahem,

" ....Now lets look even further. Most of the small business owners in the highest group fall in the between 1M and 5M category. In other words a repeal of the tax break would be felt disproportionately by them than by any billionaire. So as much as the left likes to rail about benefits to the uber rich, the reality is they aren't the ones getting the most benefit. "

uh, 1M to 5M is uber rich. The reality is, the working poor cannot afford the basic necessities of living, the unemployed are in worse shape and the indigent are apparently an afterthought not worthy of consideration, when compared to how many tens of thousands or hundreds of thousands of dollars, a shift of a few percentage points of tax rate, have on those who report incomes grossly in excess of what they need or deserve. The market is not magic, it is malleable and the market is consistently manipulated by powerful interests with deep pockets.

Your foolish treatise on how a small business owner, an employer (gosh!), deserves to be taxed less. Said business owner/exploiter, should pay more tax, because they stand to gain more my the proper order of a functioning economy. Those who profit the most deserve to have the most skin in the game, in terms of investing in the economy that supports their very being. To promote a tax structure that destroys social order, peace and well being is counter productive. It is raising the rights of the individual above the rights of us all, at all of our expense and detriment.

So, lets just see how those birds come home over the next year or two. So be it!

Posted by: right_as_rain | February 17, 2011 12:14 PM | Report abuse


You Dems keep saying the tax breaks for the rich were some how done by the Republicans Are you really that stupid? You realize, of course, that the bill passed BEFORE the new year? BEFORE the Republicans took over?
In other words, little Barry and his half-wit liberals owned the House, Senate, and White House. If you don't like it, you know who to blame. So either you're confused or stupid. Which is it? If Obama was half as smart as he thinks he is, he'd be twice as smart as he really is

Posted by: Loxinabox | February 17, 2011 1:12 PM | Report abuse

It is time that WP starts pointing out those that are acting like adults about our fiscal house. The tax payers are not a never ending treasure chest. People in the private sector are loosing jobs. How many in the federal sector have lost a job, or even had a small cut in benefits? Oh that right if that happens, like spoiled children the riot like in WI, leaving trash on the public grounds, oh also taking kid out of school to protest also. They can even do there own protesting the have to have kids that don't even know what is really going on to help.

Posted by: tateofpa | February 17, 2011 1:50 PM | Report abuse

You sound like a bunch of cattle; "Dems are Stupid... no, Republicans are Stupid!"

Guess what folks? Both parties are screwing you, and you keep voting them into office. YOU are stupid.

Bush spent TRILLIONS on airport "security" and two failed wars. What have they accomplished, other than lining the pockets of the defense industry? Do you feel secure now, knowing that you're "safe" from Saddam's imaginary WMDs and big, bad Bin Laden, who collectively killed fewer Americans in 2001 than accidental falls?

Obama handed out hundreds of billions of YOUR tax dollars to banks, essentially because they were committing fraud. Again, what did it accomplish, other than "saving" a bunch of rich bankers? How's your 401k looking, now that we're cutting Social Security?

And so I'll see your insults and raise you one; both parties are stupid, and with every word you type the failings of our educational system are laid bare.

I'd love to educate you more, but we spent all of the textbook money on body scanners and bailouts.

Posted by: BrassMonkey111 | February 17, 2011 3:22 PM | Report abuse

Although this is from the Washington Post has anyone found this article in the print edition?

Posted by: mysterytoy1 | February 17, 2011 4:44 PM | Report abuse

You sound like a bunch of cattle; "Dems are Stupid... no, Republicans are Stupid!"

Guess what folks? Both parties are screwing you, and you keep voting them into office. YOU are stupid.

Bush spent TRILLIONS on airport "security" and two failed wars. What have they accomplished, other than lining the pockets of the defense industry? Do you feel secure now, knowing that you're "safe" from Saddam's imaginary WMDs and big, bad Bin Laden, who collectively killed fewer Americans in 2001 than accidental falls?

Obama handed out hundreds of billions of YOUR tax dollars to banks, essentially because they were committing fraud. Again, what did it accomplish, other than "saving" a bunch of rich bankers? How's your 401k looking, now that we're cutting Social Security?

And so I'll see your insults and raise you one; both parties are stupid, and with every word you type the failings of our educational system are laid bare.

I'd love to educate you more, but we spent all of the textbook money on body scanners and bailouts.

Posted by: BrassMonkey111 | February 17, 2011 3:22 PM
==========================================
Ding, ding, ding!
We have a winner, BrassMonkey, everyone!
He just told all you sycophants, robots and left and right party wankers the TRUTH!!!!!

Posted by: priceisright | February 17, 2011 5:02 PM | Report abuse

We need revenue??

How about rescinding all these special tax incentives for large business, some of which even reward them for taking American jobs overseas.

You think our elected career politicians would ever do that??
Or maybe I should say, would the lobbyists allow them to do that??

Companies, like GE, have not paid taxes in years .......
and they are not the only one.

What about the subsidies given to these poor oil companies .....
many of whom have not paid taxes either.

Get the idea for cutting the deficit??

But the government by the people for the people has vanished.
We are now a Cashrarocy, and no longer a Democracy!!

Posted by: bkarpus | February 19, 2011 5:50 AM | Report abuse

The Kenyan President doesn't know how to spell the word "cut."

Posted by: priveye | February 19, 2011 5:53 AM | Report abuse

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