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Budget Gimmick on Capping War Spending Shrinks

One safety valve for the Super Committee was derived savings from a reduction in war costs. Those costs are in an OCO (overseas contingency operations) budget, and the way that the Congressional Budget Office calculates them basically takes the last year’s expenditures and assumes a stasis on them for the next 10 years. By capping these expenditures, you can get “savings.” In fact, if applied on Fiscal Year 2011, this would amount to $1 trillion in savings. It’s a gimmick, but capping war costs isn’t such a bad idea in and of itself.

Well, we’re no longer in Fiscal Year 2011. And that forces a recalculation of those expenditures, based on previous spending. And when you do that, you learn that less savings can be generated from capping the war costs.

When Senate Majority Leader Harry Reid was looking for quick savings in August, the CBO stepped in and validated more than $1 trillion in potential deficit reduction over the next decade if Congress were to cap future war funding for Iraq and Afghanistan. But with a new fiscal year under way this month, CBO Director Douglas Elmendorf said Wednesday that the agency’s 10-year projection had dropped by $440 billion as a result of new defense benchmarks set for 2012.

That’s a 44 percent swing in a matter of months and could complicate the work of the 12 member House-Senate supercommittee charged with coming up with a $1.2 trillion deficit-reduction plan by Nov. 23. Republicans have always been skeptical of relying too much on the war savings, but side deals have been actively discussed by the leadership recently that would use war savings to relieve perennial budget fixes for the alternative minimum tax and Medicare payments to physicians.

This means there’s a far smaller pot of money to use for either deficit reduction or a patch for the ATM or the sustainable growth rate of Medicare reimbursement. It means that those deficit savings have to come from somewhere else. It’s good news in the sense that the long-term deficit, on paper, is smaller than initial projections. But because Congress is obsessed with saving trillions regardless of the economic or budgetary circumstances, it’s pretty bad news. Because the savings will fall on the backs of those who need services, in all likelihood.

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David Dayen

David Dayen

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