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Obama says his budget plan will cut deficits by $4 trillion

Editor's note: This is the archived version of a fact-check that has since been corrected. You can see the updated fact-check here. The rating remained Half True.

Says his budget plan "would cut our deficits by $4 trillion."

Barack Obama on Thursday, September 6th, 2012 in a speech at the Democratic convention
Obama says his budget plan will cut deficits by $4 trillion

Republicans have used the government’s growing deficits as a cudgel to drive Democrats out of office. The strategy worked well in 2010 and, with the nation’s total debt having hit $16 trillion, they are using it again.

Democrats say they, too, are working to reduce the deficits. In his speech at the Democratic convention, Barack Obama said he will put the country on a path to better fiscal health. He spoke of the choice this election offers voters and said "You can choose a future where we reduce our deficit without wrecking our middle class. Independent analysis shows that my plan would cut our deficits by $4 trillion."

The president made the same claim in a television ad. When we dug deeper, we found that it exaggerated the reductions by cherry-picking the largest number.

The independent analysis the Obama campaign relied on back then came from the Center for Budget and Policy Priorities, a liberal think tank. Looking at a 10-year horizon, the center estimated that the president’s combination of spending cuts and tax increases would lower deficits by $3.8 trillion over the decade. That total included the $1 trillion in reductions that the president and Congress agreed to in 2011.

According to the center, about 46 percent would come from higher revenues; about 54 percent of the reductions would come through spending cuts.

Obama’s plan is detailed and complex. To raise revenues, families making over $250,000 a year would pay more, but he also has an extensive list of tax breaks he would eliminate. They can be arcane. For example:

* Repeal last-in, first-out (LIFO) method of accounting for inventories
* Determine the foreign tax credit on a pooling basis
* Repeal lower-of-cost-or-market inventory accounting method
* Eliminate special treatment of carried interest

On the spending side, the president proposes $580 billion in cuts to a number of programs that range from agricultural subsidies to rental assistance to airport construction. In 2011, Obama proposed some $320 billion in health program cuts. The federal government would pay less to drug makers and nursing homes. In the long run, many states would shoulder a larger share of Medicaid costs.

Changing Baselines

The Obama campaign claims that over 10 years, it would trim deficits by $4 trillion. Many assumptions lie behind that statement, but the most important question is, compared to what?

No budget projection makes sense unless it’s measured against some baseline. Changes in tax law, government spending, and economic growth are just some of the major factors that drive baseline estimates.

The Congressional Budget Office, the nonpartisan analytic arm of Congress, looked at the president’s 2013 budget and concluded that it would increase the cumulative deficit by $3.5 trillion over its baseline between now and 2022. That greatly undercuts Obama’s argument that he is saving money.

But the CBO baseline assumed that all of the Bush tax cuts and other tax breaks would expire. It assumed that Congress would stick to the spending caps in the deficit reduction law it passed to avoid a government default. Some independent groups doubt that the CBO baseline is realistic.

Committee for a Responsible Federal Budget, a bipartisan organization focused on debt reduction, has its own baseline. Unlike the CBO, it assumes that congress will find a way around the mandatory budget cuts and that it will extend the tax cuts to some degree.

Using the baseline developed by the committee, the president’s budget plan looks much better. Jeff Vanke, the committee’s senior analyst, says it doesn’t add up to $4 trillion in savings, but it does stand at about $1.7 trillion.

When we contacted the Obama campaign, a spokeswoman said Vanke’s group wasn’t including the $1 trillion in deficit reduction that already passed congress. Perhaps, but even so, that still doesn’t get Obama to $4 trillion.

Our ruling

Obama says his plan will cut deficits by $4 trillion.

The "independent" source that supports that claim is a liberal think tank. Another group, one that puts a premium on deficit reduction, gives the president credit for moving in the right direction but thinks he won’t get as far as he says he will. They think the president’s plan might get close to the $3 trillion mark, but not $4 trillion.

We rate the statement Half True.
About this statement:

Published: Friday, September 7th, 2012 at 12:13 a.m.

Subjects: Deficit


McGladrey, Obama’s 3.8 Trillion Spending Plan Includes Numerous Tax Changes, February, 2012

Kaiser Health News, How Obama Plans to Cut Health Programs by $320 Billion, September 19, 2011

Office of Management and Budget, FY 2013 Budget of the United States

White House, President’s Plan for Economic Growth and Deficit Reduction, September 19, 2011

Treasury Department, The President’s Framework for Business Tax Reform, February 22, 2012

New York Times, Obama Offers to Cut Corporate Tax Rate to 28 Percent, February 22, 2012

Los Angeles Times, Deficit Reduction Numbers from the White House Don’t Add Up, February 13, 2012

Center for Budget and Policy Priorities, How Does the Obama Budget Do in Meeting Deficit Reduction Goals, February 16, 2012

US News, What the CBO Really Said About Obama’s Budget, April 25, 2012

Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2012 to 2022, January 31, 2012

Congressional Budget Office, An Analysis of the President’s 2013 Budget, March 16, 2012

Congressional Budget Office, March 2012 Baseline, March 13, 2012

Committee for a Responsible Federal Budget, CRFB’s Realistic Baseline, January 31, 2012

Interview with Jeff Vanke, Senior Policy Analyst, Committee for a Responsible Federal Budget, August 3, 2012

Written by: Jon Greenberg
Researched by: Jon Greenberg
Edited by: Bill Adair