Redefining “balance”

POSTED JULY 8, 2011

In a budget context, balance has a well understood meaning. A balanced budget is one in which total spending equals total revenues.

President Obama and his team have been working hard to redefine balance in the context of the current budget negotiations. In an attempt to gain rhetorical leverage and frame the negotiations, Team Obama is trying to impute two new apparently objective but absurd definitions to the wordbalance.

First, the President tells us we need a “balanced approach” to deficit reduction that involves “shared sacrifice” and which requires that there be “no sacred cows.” Yet the President also insists that taxes not be raised on anyone who is not rich. His balanced approach to deficit reduction includes deficit-increasing spending hikes for infrastructure, clean energy, scientific research, and education, as well as a deficit-increasing payroll tax cut. His language suggests that pain must be distributed widely, while his policy positions in the negotiations dictate the opposite.

Yes, he is reportedly considering deficit-reducing policy changes that he would rather not, including some as yet unknown changes to entitlement spending. But that by itself doesn’t override the exclusion from shared sacrifice of significant components of government spending and tax collections, nor the deficit-increasing policies he proposes in other areas.

I’m not actually debating his policy preferences here, just pointing out that they are inconsistent with any intellectually honest definition of “balance” that means “broad-based shared sacrifice.” If he included all government spending and all taxable income in the negotiations, that would be balancedby this definition. Instead, he and his team are using balanced to mean “meets the President’s policy preferences” while trying to fool you into thinking they mean something fair and equitable.

Second, Team Obama talks about the need for “balance between spending cuts and tax increases.” But numeric ratios of spending cuts to tax increases are absurd, for three reasons.

1. As I explained yesterday(next blog post), how you measure a spending cut depends on how you define the starting point for that measurement. If you begin by assuming no change in troop presence in Afghanistan and Iraq for the next 10 years, then you can claim credit for a roughly $1 trillion spending cut merely by implementing policies that have already been decided. This allows Team Obama to inflate their “spending cut” numbers in their ratio calculations, just as it allows them to make the entire deficit reduction package look bigger.
2. Eliminating a tax deduction is a tax increase. In many cases it can be good tax policy, but it’s still a tax increase and needs to be included on that side of the ledger. Team Obama relabels this as “cutting spending [through the tax code].” Somewhat ironically, in the 2009 stimulus they relabeled in the other direction, calling new refundable tax credits “tax cuts” when they’re actually spending increases.
3. In their ratio Team Obama counts reduced spending for interest as a spending cut, even when it results from a tax increase. Imagine a deficit reduction package that consists of only one policy change, a $1 trillion tax increase. Lower interest payments that would result would reduce the deficit by an additional $200 billion. The Administration would label this package, which only raises taxes, as a “5:1 ratio of tax increases to spending cuts.” If you buy into the ratio concept at all, then reduced interest payments should be excluded from the ratio or allocated proportionally based on the nature of the policy changes.

When you hear “balance” over the next few weeks, you should instead think of legislative balance. What Team Obama actually means is, “We get something we want, Republicans get something they want.” The President and his team want to raise taxes on “the rich,” while Republicans want entitlement spending cuts, so a package is “balanced” only if both sides get what they want.

Unlike the two previous definitions, this is a perfectly appropriate use of the word. I may dislike the policy consequences of this kind of balance, but it’s not language manipulation.

Over the next few weeks, you should be skeptical of anyone’s attempt to claim an objective measure of a particular deficit reduction package as balanced or unbalanced. You’re almost certainly being spun.