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$4 Trillion in Exaggerated Savings

By Maya MacGuineas

On two separate issues -- health-care and the budget -- the president has promised savings of $2 trillion. A total of $4 trillion dollars -- now that's real money. Unfortunately, the claims are completely exaggerated.

First, take health care. Recently, a collection of industry groups came to Washington for a meeting and photo-op with the president. News headlines trumpeted their pledge to save $2 trillion over the next decade -- headlines that were not surprising given that President Obama said, "over the next 10 years -- from 2010 to 2019 -- they are pledging to cut the rate of growth of national health care spending by 1.5 percentage point each year -- an amount that's equal to over $2 trillion. Two trillion dollars."

Turns out that's not what the groups said at all. In their letter to Obama, they promised to "do our part to achieve your Administration's goal of decreasing by 1.5 percentage points annual health-care spending growth rate -- saving $2 trillion or more." Of course, their part of that savings may be significantly less than the full $2 trillion. The groups offered no further specifics. And, anyway, there would be no way to enforce such a hazy commitment. The administration, I'm told, understood this, but the president and others apparently chose to convey a much more optimistic message.

And then there's the budget. Administration officials have argued that they recognize the importance of getting an unsustainable situation back to a manageable level once the economy has recovered. How do they propose doing this? They would cut $2 trillion out of the budget -- a promise that has become one of their favorite talking points.

But in budgeting, "savings" all depends on where you begin. In order to come up with $2 trillion savings, the Office of Management and Budget makes a lot of assumptions that don't reflect the real world or standard budget conventions.

They assume that all of President Bush's tax cuts -- slated to expire at the end of 2010 -- would continue indefinitely. They then factor in a repeal of the tax cuts going to families making over $250,000. And voila: $600 billion in savings. Except that extending a law only to repeal it doesn't really help the bottom line.

They also assume that the war in Iraq would continue at a greater intensity than the president supports (or even President Bush supported). And then they make a show of deflating the pumped up Iraq spending for a "savings" of more than $1 trillion.

Another $300 billion of OMB's "savings" comes from interest payments that are little more than accounting gimmicks.

The frustrating thing here is that I believe Obama is truly concerned about the country's fiscal situation. He has surrounded himself with brilliant economic thinkers who share his concerns about excessive deficit spending. And he takes every opportunity to remind us of the importance of balancing the books. Just last week, he pivoted from a question about increasing Social Security benefits to say:

But what is true about the budget -- is absolutely true -- is that we can cut programs, we can eliminate waste, we can eliminate abuse, we can eliminate earmarks; we could do all that stuff, and we're still going to have a major problem, because Social Security, Medicare, Medicaid, interest on the national debt. And so I have said before and I will repeat again that my administration is going to seek to work with Congress to execute serious entitlement reform that preserves a safety net for our seniors, for people with disabilities, but also puts it on a firmer, stable footing so that people's retirements are going to be secure not just for this generation, but also for the next generation. And that's going to be hard work. It's going to require some tough choices, but I'm going to need support of the American people to get that done.

That response, emphasizing the need to cut entitlement spending instead of expanding it, is exactly the right point to make. (Though, at the same time, he's creating a huge new health-care entitlement.)

It's easy to understand the bind Obama is in. Being more direct about the policies required to fix the budget is politically perilous. But meaningful deficit reduction will involve real sacrifices -- of the sort you can't spring on the public all of a sudden. The president should be laying the foundation for what's to come.

Maya MacGuineas is director of the New America Foundation's Fiscal Policy Program and a visiting fellow in the Post opinions section.

By Maya MacGuineas  | May 20, 2009; 9:55 PM ET
Categories:  MacGuineas  | Tags:  Maya MacGuineas  
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Next: The Past Continues to Haunt Obama

Comments

Is anyone really sympathetic to the health insurance industry? If they don't perform then it might be time for the windfall profits tax that hit the oil industry in the past. And tax them before the executive bonuses are paid.

As for Social Security, look at the efforts by Bush/Cheney to privatize it - and look at what happened to the market. If Bush/.Cheney had been allowed to have their way on this one then that private investment would probably be worth half of what Social Security is for someone retiring today.

What's to come? I believe that the focus on taxes will be the sin taxes and the top tax brackets. Anyone who screws up Social Security or Medicare is in for a short political life.

Posted by: KHMJr | May 20, 2009 10:39 PM | Report abuse

Perhaps you are stretching civility just a might too much here. "Exaggerate" is not what is going on here.

Lying is.

Posted by: Curmudgeon10 | May 21, 2009 3:21 AM | Report abuse

Exagerations got him elected and have kept him popular. Why let reality ruin his image?

Posted by: JoeTH | May 21, 2009 8:39 AM | Report abuse

Certainly, sacrifice is in order. But unfortunately, those who shrilly attack the President's proposal for health care don't seem to be prepared to ask the huge pharmaceuticals and insurance companies to make sacrifices. That would be un-American it seems. Instead the poor and middle classes are the ones expected to bend and let the big guys keep their tax breaks.......

Posted by: dmiller3 | May 21, 2009 8:53 AM | Report abuse

Maybe . . . Prez Obama can see what's coming -- the inevitable disassembling of the dysfunctional, phoney healthcare delivery "system" that's in place now -- and, he's anticipating the savings that event will result in . . .

Or, to put it another way . . . he actually THINKS ahead -- to solve problems -- not like George W., who waited for things to "fix" themselves . . . or, just ignored problems, altogether -- and hoped they'd disappear on their own . . .

Yeah, that really worked out well . . .

Of course, the whole healthcare system could be government-administered and run much more efficiently -- and funded (totally) by revenues generated from the decriminalization of (now) illegal drugs . . . but the healthcare insurance mafia doesn't want that to happen . . .

They'd have to dream up some new scam to make money off taxpayers . . . how inconvenient, for them -- oh! the inhumanity!

Posted by: thesuperclasssux | May 21, 2009 8:58 AM | Report abuse

Exagerations got him elected and have kept him popular. Why let reality ruin his image?
******

and its not like the media is going to call him on being irresponsible.

they are making a lot more (or perhaps losing a lot less) than they would otherwise because of obama's rock star status.

for them, obama, encapsulated by his presidency and public persona, is "too big to fail".

isnt it funny that we get bent out of shape about the shortsighted profit-driven actions of banks but willfully ignore those of media outlets?

Posted by: dummypants | May 21, 2009 9:10 AM | Report abuse

Maybe . . . Prez Obama can see what's coming -- the inevitable disassembling of the dysfunctional, phoney healthcare delivery "system" that's in place now -- and, he's anticipating the savings that event will result in . . .

Or, to put it another way . . . he actually THINKS ahead -- to solve problems -- not like George W., who waited for things to "fix" themselves . . . or, just ignored problems, altogether -- and hoped they'd disappear on their own . . .
*******

so he can "see whats coming" and "think ahead" to savings for which there is scant evidence will occur?

sounds like you think he is an oracle. why am i not surprised?


Posted by: dummypants | May 21, 2009 9:14 AM | Report abuse

Thank you, Ms. MacGuineas. Good piece that is tough for anyone to argue with. The piece is actually more of an indictment of our press than the President. At least Pres. Obama is making an effort to do his job (even though he has a very big learning curve) - the lazy press isn't even trying.

Hopefully you or someone else will expose the "jobs saved" nonsense that's going around. A number that is easy to invent but impossible to verify.

Posted by: GodFamilyNation | May 21, 2009 9:28 AM | Report abuse

"Exaggerated Savings"?

At what point do we stop using that euphemism for lying? Barack is the most deceptive, dishonest president this nation has ever seen. Why is it that the media cannot see what he is doing? Even when they do see, as is evident in this article, they still do not see clearly. It is sad.

Posted by: John_II | May 21, 2009 9:35 AM | Report abuse

"It's easy to understand the bind Obama is in. Being more direct about the policies required to fix the budget is politically perilous."


This statement seems to suggest he knowingly lied to get elected. You wouldn't dare suggest that about Mr. Obama, would you?

Posted by: ttj1 | May 21, 2009 9:48 AM | Report abuse

Wait a minute. You say,

"They assume that all of President Bush's tax cuts -- slated to expire at the end of 2010 -- would continue indefinitely. They then factor in a repeal of the tax cuts going to families making over $250,000. And voila: $600 billion in savings. Except that extending a law only to repeal it doesn't really help the bottom line."

I think you got tripped up in bad syntax, resulting in nonsense. The tax cuts for the rich end in 2010. Period. That results in a savings of $600 billion over 10 years. That's real revenue that we don't have now!

Why is this trickery? He is nowhere counting the billions that the country lost over the 10 years the Bush tax cuts were in effect.

In any case the current Obama budget is necessary and the ship will right itself in time. In the meantime look at all the Obama-hatred you have drawn out here with an exaggerated, silly story. The country really does not deserve Obama.

Posted by: walden1 | May 21, 2009 9:56 AM | Report abuse

When I was a child, I and my friends broke several windows of a neighbor's house by throwing rocks throught them. When my father asked me if I had been involved, I exaggerated and told him, "No."

Posted by: YanceyWard | May 21, 2009 9:56 AM | Report abuse


"The country really does not deserve Obama." is exactly the type of mentality which made North Korea, Mao's China, etc. possible.

There is NO politician who would be so high and stellar that the country wouldn't "deserve" him. Not Bush. Not Reagan. Not Clinton. Not Roosevelt. Not even Winston Churchill or Gandhi.

That a community organizer of no proven leadership competence is being declared above what the US "really deserves" speaks volumes about the cultist, banana-republic-like nature of much of Obama's following.

Posted by: Mario9 | May 21, 2009 10:07 AM | Report abuse

Oh, I get it now, just remembered you are not an economist only acting as such for a right-wing organization devoted to Republican ideals. So it's not your fault that the Post is giving you this "editorial" space. Cripes!

Posted by: walden1 | May 21, 2009 10:09 AM | Report abuse

Why not nationalize everything for even more savings? Today banks, automobiles, health care, pre-school, tomorrow the world! How about a series of 5 year plans. Then we can begin erecting huge, iconic statues of Lenin, Marx, and Stalin in the village square.

Posted by: pa_king1 | May 21, 2009 10:10 AM | Report abuse

If this were a farm problem, we could say there are two ways to cut costs. Increase crops or cut planting. So far the investment in schools of agriculture and mechanics have produced a scientific agriculture that produces more food for less effort and costs. That is the way to cut cost.

But most go for the rationing and less product model. They will kill us.

Posted by: GaryEMasters | May 21, 2009 10:17 AM | Report abuse

Maya, where were you when Rep. Paul Ryan exposed Obama's budget tricks during the House Budget hearing? The media was (and remains) too busy fawning over their savior to expose the lies and deception. Where's all the investigative reporting that we saw during the campaign on Palin and McCain? How about some investigative reporting on this administration? And you wonder why newspapers are dying nowadays.

Remember when the Deceiver in Chief, referring to the Bush "budget tricks," said the following: "that kind of dishonest accounting is not how you run your family budgets at home; it's not how your government should run its budgets either."

And yet we have another instance of fanciful rhetoric from the rhetorician extraordinaire that is a far cry from reality.

Exaggerate? To exaggerate is to "to magnify beyond the limits of truth." There is not one ounce of truth in what the Deceiver in Chief is proposing as savings. This is nothing short of deception and lies.

Posted by: conservativemaverick | May 21, 2009 10:32 AM | Report abuse

AS MR VROCLAV FRANK, PRESIDENT OF THE EUROPEAN UNION COUCIL said
Any politician with a 4 year mandate that promises solutions in 10 years ia not being serious....

Posted by: FAJERAB1 | May 21, 2009 11:08 AM | Report abuse

The problem is that there is a health insurance "industry". If Congress were to buy-out the stockholder equity of these companies, and return them to the status of being mostly non-profits or not-for-profits as they were up to the 1980s, they could save billions in corporate profits and high corporate salaries. The reformed companies could then just concentrate on efficiently passing-through costs and monitoring waste/fraud/abuse. Health care costs started to go up dramatically in the 1980s once these activities were privatized- duh.

Posted by: ripvanwinkleincollege | May 21, 2009 11:14 AM | Report abuse

This article is very disingenuous. The Republicans accuse Obama of "tax increases" by repealing the Bush tax cuts. If that is a tax increase, then it must also be a $ savings. This article is just a GOP talking point, to accuse Obama of "not saving" the very money that Republicans are calling a tax increase. If Republicans will admit that allowing the Bush tax cuts to expire is not a tax increase, then -and only then- should the Obama administration change its postition that it is "saving money" by taking the POLITICAL RISK to end the Bush tax cuts.

Posted by: menthe | May 21, 2009 11:19 AM | Report abuse

You people may hate the insurance industry, but if they are bad, can you imagine how much worse the government will be?

You cannot.

Allowing a tax cut to expire is a tax increase. The money belongs to the taxpayer not the government. Get that through your skulls.

Why do progressives, liberals, socialists, statists, etc all start with the underlying premise that all money belongs to the government and that the government allows us to keep some of it?

We used to decide how much of the government could collect.

When the people fear the government, there is tyranny. When the government fears the people there is liberty.

Posted by: dmorris1 | May 21, 2009 12:38 PM | Report abuse

When you have Timothy Geither offering no actual details, or Recovery.gov offering none, why should the President offer any?

Posted by: jgdonahue | May 21, 2009 1:41 PM | Report abuse

Nice article with good points; thank you, Maya. The sad reality here is we are saddled with yet another Administration who thinks it is acceptable to lie to the Citizens because we are too stupid to determine the facts and expose the fallacies being presented through the media. This is a dangerous error. The more the Obama Administration makes grandiose announcements which do not support (or contradict) their actions and results, the less credibility they will have. The national and Global situation is critical and the (wink-wink) "campaign-style" promises will no longer be accepted. Creating straw-man victories with which to trumpet your accomplishments with highly-embellished rhetoric which is false to reality, is simply unacceptable. Mr. Obama better get ready to deal wiith the new wave of MBA and CDO defaults based on commercial mortgage and credit card instruments, and address the job crises in a meaningful way, or he will never survive a four-year term. Mr. Obama is the "new guy" in the office who just doesn't understand his job, KNOWS he doesn't understand his job, and keeps telling all the managers how great his performance is on any other issue in hopes that no one recognizes his ignorance and incompetence. It will be a longer, more painful road for all of us, thanks to him...

Posted by: wcmillionairre | May 21, 2009 3:01 PM | Report abuse

Is Obama the Hoover of the Democratic Party, making a potenial Depression into a real Depression by massive deficit spending and unneeded reform during economic crisis?

Posted by: bamvol | May 21, 2009 3:24 PM | Report abuse

Obama could have also kept the cost of our two wars off the books like GW and saved us billions, but he didn't now did he?

Posted by: JRM2 | May 21, 2009 3:25 PM | Report abuse

Is bankrupting the United States an impeachable offense? A govermor can be recalled for that.

Is the long term destruction of the auto industry, the health care industry, the energy industry and the banking industry an impeachable offense?

Posted by: bamvol | May 21, 2009 3:27 PM | Report abuse

"Why do progressives, liberals, socialists, statists, etc all start with the underlying premise that all money belongs to the government and that the government allows us to keep some of it?"
----
So I guess you think Ronald Reagan was a progressive-liberal socialist?

Posted by: JRM2 | May 21, 2009 3:28 PM | Report abuse

"Is bankrupting the United States an impeachable offense? A govermor can be recalled for that.

Is the long term destruction of the auto industry, the health care industry, the energy industry and the banking industry an impeachable offense?

Posted by: bamvo"
-----
I think it's too late to impeach George Bush. And BTW: Congress votes on these matters.

Posted by: JRM2 | May 21, 2009 3:29 PM | Report abuse

Another really - really bad day for Baracky Hussein Obama and the DEMOCRUDS.

Posted by: hclark1 | May 21, 2009 4:49 PM | Report abuse

Distortions and lies worse than what you are accusing Obama of! You are not only a slovenly hack propagandist by a lousy American.

Your trick with the Bush tax cuts is to assume they "expire" automatically and that Obama and Congress do not have to take a stand to let them expire.

Fact: 40 plus Republicans are prepared to fight for the renewal of these tax cuts and perhaps some Democrats. You personally, it is clear, would like to see those cuts continue. So what you say about the $600 billion saved by Obama is not only garbage but offensive, eye-popping hypocrisy.

Those Bush tax cuts for the rich stole $600 billion from "our" budget during the Bush years. And still you and Bush ran up enormous deficits (without counting Iraq war expenditures). To me this is the most shameful part of the Bush/Maya/Republican legacy. You, like Cheney on torture, have no right to speak in public.

Posted by: walden1 | May 21, 2009 5:08 PM | Report abuse

walden1:

The Bush tax cuts stole $600 billion from "our" budget??? Are you saying you have a right to someone's money before they even pay their taxes? How do you have a right to someone else's money? Should I just cut out the middleman and cut a check for next year's taxes directly to you? How much do I owe you? It won't be much because I don't quite meet even Obama's definition of "wealthy", but I'll do what I can. Seriously, you've completely exposed your love of communism and hate of capitalism. From each according to his ability to each according to his need, right?

Posted by: GodFamilyNation | May 21, 2009 5:31 PM | Report abuse

It boggles my mind that many here are speaking authoritatively on what ails our health care system even though many of them are probably geographically challenged (their world probably ends at their State boundaries).

With all the shortcomings with our system, there's still no comparable health care system anywhere on this planet.

When a Rich-n-famous (from any corner of the world including Western Europe) needs serious medical attention, he / she heads for USA.

Do we have perfect system? Off course not.
Is it affordable to average Americans? Not unless subsidized by their employer.
Does it mean we should hand over the total control to the Government? Hell NO.

Let's fix the root cause of the problem.
For starter, lets do the following:
Cut the lawyers out of the health care system by limiting the frivolous lawsuits.
Regulate the HMOs the same way we do the utilities. No more outrageous Salaries and Bonuses for the top brass.
Prohibit the Drug makers from advertising their drugs. The decision to prescribe any drug should be left to the medical doctor only. Patient should not have a say in what medicines to be administered.
Yank the licenses of incompetent doctors.

The alternative is to create a DMV type bureaucracy, where a public school educated buffoon makes the decision for your treatment.
I don't know why that is a better scenario from an arrogant HMO controlling your medical needs!

Posted by: vatodio | May 21, 2009 11:46 PM | Report abuse

I have been part of Health care as a physician, I know what used to happen, increase the budget by 15% and settle for 5%, but the following year budget, took the previous years increased budget as the base, called ear marked. These $2 and 4 trillion, are only like shadows.One plays with % one time and real dollars another time.The same way also for time horizon. These are political gimmicks. There is no doubt in my mind these figures will become a shimmering horizon- same way as for Iraq- soldiers sake and Afganistan and Pakistan for fighting the terrorists-all are very long shots. No doubt we have to protect our soldiers, then comes humanitarian aide after destroying the helpless civilians. That is how the budget grows

Posted by: jayrkay | May 22, 2009 2:30 PM | Report abuse

I think Maya must have been born yesterday.

Mark Twain made popular a line attributed to Benjamin Disraeli: "There are three kinds of lies: Lies, Damned Lies, and Statistics.

Government officials have been using smoke and mirrors to make their failures look like future successes for a very long time. They are able to do this because reporters are financial morons -- knowing just about as much about finance as the executives at AIG or the average American voter.

Posted by: fredricwilliams@netscape.net | May 22, 2009 8:30 PM | Report abuse

As far as funding health care is concerned, here's quite a bit of savings to be had simply from shifting from the system from inefficient, profit-making insurance companies to a single payer. The overhead of most insurance companies is three times that of Medicare.

http://bioblog.biotunes.org/bioblog/2009/05/15/tax-corn-products-for-healthcare/

Posted by: Bguhl | May 23, 2009 10:38 AM | Report abuse

The answer is easy. Obama produce your birth certificate so we can deport you to Indonesia. Then get someone that has actual experience in the office instead of an ACORN ward organizer from Chicago.

Posted by: Bubbette1 | May 23, 2009 8:00 PM | Report abuse

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