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Raising the Debt Ceiling

How do you calculate a spending cut?

Marketplace Staff Aug 1, 2011
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Steve Chiotakis: Voting gets underway today on a plan to raise the nation’s debt ceiling while cutting spending and the federal budget deficit. The proposal announced late yesterday calls for big cuts over the next decade, including to defense and entitlement programs. But what does that figure — nearly $2.5 trillion — really mean?

Marketplace’s Gregory Warner is with us live with the latest on that. Good morning Gregory.

Gregory Warner: Good morning.

Chiotakis: How do politicians come up with these one — two — trillion dollar numbers anyway?

Warner: OK so let’s say you walk into a shady discount store and it says sale today ‘50% off.’ You want to know 50% off what — maybe they just doubled the prices this morning. So when politicians say we’ve got two and a half trillion dollars from our spending over 10 years, they actually get to choose what that projected spending is. Maya MacGuinness of the Committee for a Responsible Federal Budget says it brings up this question:

Maya MacGuineas: OK, we’re gonna save $2 trillion! Well is that a lot or a little? And it really depends if you’re comparing it towards something that’s assuming an excessive amount of spending? Or something that was more realistic?

Warner: So here’s an example of what she’d call ‘unrealistic comparison.’ If you wanted to make your spending plan look really good, you could draft it as if spending in Iraq and Afghanistan would have continued for 10 years at the current levels. Now your proposed cuts look great. But, if you say well, come one, we would have brought our troops home before that, then suddenly those cuts look like a lot less.

Chiotakis: So alright, under a plan, Gregory, that cuts $2 trillion, is that a lot or a little?

Warner I’m going to let the analysts take a crack at those numbers, because they haven’t really even seen them yet. But, this is just going to get crazier next year because you know this bipartisan committee that’s supposed to find another $1.5 trillion worth of cuts, well that committee can choose whatever budget comparison they want to make, and depending on that comparison they can make an increase look like a tax cut and make everybody happy.

Chiotakis: It’s all in the spin. Alright, Marketplace’s Gregory Warner. Gregory, thanks.

Warner: Thanks, Steven.

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