Factcheck.org: The Budget According to McCain

Summary
McCain's big promise is that he can balance the budget while extending Bush's tax cuts and adding a few of his own. He likes to leave the impression that this can be done painlessly, for example, by eliminating "wasteful" spending in the form of "earmarks" that lawmakers like to tuck into spending bills to finance home-state projects. We found that not only is this theory full of holes, it's not even McCain's actual plan. In this story we examine the spending-cut side of McCain's budget program. In Part II, we'll look at what McCain has said about taxes.

McCain's pronouncements on cutting spending, and even on the growth in the size of the federal government, are dubious at best:

McCain seems to say that he can save $100 billion by cutting out earmarks. But budget experts say that cutting earmarks would actually save very little. And questioned more closely, McCain's campaign now says that his planned savings have nothing to do with eliminating earmarks.

With earmarks out as a potential source of savings, McCain hasn't said what he'd cut out of the discretionary budget to get to $100 billion. He's even indicated that defense spending might increase. In inflation-adjusted dollars, federal spending is projected to come to $2.45 trillion in fiscal 2009, including $1.4 trillion for Social Security, Medicare, military spending and veterans programs. The last time the budget was "trillions" smaller was 1951.

McCain says that "just in the last few years" the government has puffed up "by 40 percent, by trillions." Actually, it has taken federal spending a decade to grow 40 percent, and even longer to grow by "trillions." This year federal spending is projected to come to $2.45 trillion, including $1.4 trillion for Social Security, Medicare, military spending and veterans programs.

Analysis
Beginning, appropriately enough, with an April 15 speech, presumptive Republican presidential nominee John McCain began unveiling a series of economic proposals. He elaborated on his plan in an April 16 interview with Andrea Mitchell on MSNBC and again in an April 20 appearance on "This Week with George Stephanopoulos" and has continued repeating many of his claims on the stump. In the first of our two-part article on McCain's budget and tax proposals, we look at his plan to reduce government spending.

McCain's Earmark Sleight-of-Hand
The McCain campaign has been vague about where, exactly, the candidate will cut spending. But one theme has emerged consistently: McCain will save money by eliminating earmarks:

McCain is apparently claiming that he can save $100 billion simply by eliminating earmarks, past and present. Let's start with a simple overview of earmarks, which are line items inserted by lawmakers into legislation funding the federal government. Estimates of earmarked spending vary. For fiscal 2008, the budget watchdog group Taxpayers for Common Sense said there was $18.3 billion earmarked in spending bills. Citizens Against Government Waste came in at $17.2 billion. The Office of Management and Budget tallied earmarks at a mere $16.9 billion. In 2006, the Congressional Research Service, which used a different definition of "earmark" for each of the 11 spending bills it studied in that year, came up with over $67 billion.

But contrary to popular belief -- this is the first of several bits of information readers may be surprised by -- cutting earmarks wouldn't necessarily cut government spending, according to independent budget experts from across the political spectrum. Jeff Patch, a budget fellow at the libertarian Cato Institute (and also a former McCain volunteer) told FactCheck.org that "earmarks just direct funds from executive agencies to specific projects or companies." That is, while there are still a few pet projects slipped into legislation in the dark of night that do increase the federal budget, earmarks often simply tell agencies how to spend money that they are already getting. So while earmarks may drive up the cost of government slightly (by, for example, awarding no-bid contracts in a legislator's home district), cutting earmarks alone is "not sufficient for cutting wasteful spending," Patch said. The Brookings Institution's Paul Cullinan, research director of the Budgeting for National Priorities Project, agrees, saying that earmarks "might be an allocation issue" rather than a spending issue. And Scott Lilly, a senior fellow with the liberal Center for American Progress, told us that "there's no evidence that if you took earmarks out, federal spending would go down."

And (surprise #2) McCain now says that many earmarks aren't really wasteful spending at all. For example, in 2006 the Congressional Research Service counted 75 percent (or $15.7 billion) of the 2006 foreign operations budget as earmarks. That figure includes $4.3 billion in aid to Israel and Egypt. Another $16.1 billion was earmarked for military construction and veterans affairs, and $9.4 billion more was earmarked for defense spending. That's $41 billion – or more than two-fifths of the amount of earmark spending McCain cites. But McCain has no plans to cut those particular earmarks. Douglas Holtz-Eakin, McCain's chief economic adviser, told FactCheck.org that "if you don't have earmarks, a lot of those things would be funded under regular order, if they have merit."

So if all this savings isn't coming from earmark cuts, then where will it come from? Holtz-Eakin tells us (surprise #3) that it will come from cuts in the annual budget:

Holtz-Eakin: So what he's talked about is going forward, just not signing bills that have earmarks in them, period. That's his pledge. And then, also going forward, cut discretionary spending, and that's simply a pledge to reduce the amount of spending. And it's not that it's going to be tied to going back to specific projects that began as earmarks. It's that we're going to scrub defense, non-defense spending alike, reform procurement, evaluate programs, take the time-out, the one-year pause, and look at everything and then cut the budget going forward. Which, ultimately, hopefully, we'll get $100 billion out of the annual baseline.

When we asked specifically whether the $100 billion in spending cuts had anything to do with eliminating earmarks, Holtz-Eakin told us: "It can't. I mean, by definition, every dollar is up for grabs every year."

So McCain's boast that he can save $100 billion "before you look at any agency of government" is flatly false. His economic adviser tells us that budget cuts cannot, "by definition," arise simply by eliminating earmarks. Instead, McCain's plan is to scrub $100 billion from the discretionary budget. And those cuts are not at all linked up to past earmark spending.

McCain's attempt to conflate earmark reform with budget cuts is a bit of logical sleight-of-hand (a formal logical fallacy that philosophers call an undistributed middle). McCain's argument is that:

The argument is seductive. But consider another argument that has exactly the same logical structure:

Sheep and clouds have some properties in common, but that doesn't mean that they are the same thing. Similarly, earmark cuts and budget cuts may add up to the same totals, but that doesn't mean that the budget cuts will be the result of earmark cuts.

Okay, So What Are We Cutting, Then?
The McCain campaign has been pretty vague about just what will be cut. Holtz-Eakin told us only that the cuts "will have to come from across-the-board review" of discretionary spending. Campaign spokesperson Brian Rogers told us that McCain is willing to cut defense spending on "expenditures not included in the Administration's budget or identified as a priority" to "conduct the War on Terror and defend our great nation." Indeed, McCain has pledged to overhaul the defense procurement process in order to eliminate wasteful spending.

But McCain specifically exempted military spending from his pledge to freeze increases in the discretionary budget, and he has called for increasing the total size of the military. So McCain's promises to reform the military procurement process and cut unnecessary spending don't mean saving money to fund tax cuts; it's more like taking the funds out of one defense budget pocket and putting them in another. We're all for spending efficiently, but getting more out of each dollar while spending even more of them is very different from saving money. It's a bit like a husband who tells his wife that he saved them hundreds of dollars because he bought a new plasma TV on sale.

The non-defense side of the discretionary budget totals around $540.8 billion. So even if McCain's defense budget doesn't get any bigger, he'd still be looking at convincing Congress to slash 18.5 percent of the funding for everything else in the discretionary budget -- things like veterans' health benefits, highway construction, elementary and secondary education, and immigration services. Or he could make much deeper cuts in just a few programs. He's leaving vague exactly how he'd accomplish the goal, saying he first wants to do a thorough review of government programs after he's elected.

A Trillion Here, a Trillion There
At a more fundamental level, McCain seriously overstates the rate at which the size of government has grown.

McCain (April 20): My friend, we have increased the size of government by some 40 percent just in the last few years. By some 40 percent, by trillions. By trillions, we have increased the size of government.

The size of the budget has increased by 40 percent, but McCain exaggerates in saying that has happened "in the last few years." According to the Office of Management and Budget, after adjusting for inflation, federal expenditures increased by 40 percent between 1999 and 2009. But 40 percent doesn't represent an increase of "trillions." Measured in inflation-adjusted dollars, total expenditures in 2009 are expected to be about $2.45 trillion. The last year that the budget was "trillions" smaller: 1951. Even without adjusting for inflation, it has been 21 years since the budget was trillions smaller. To our ears, 21 seems like more than a "few years." And 58 sounds like rather a lot.

But McCain wasn't finished with his trillion-dollar exaggerations. A few moments later, he added:

McCain (April 20): So why would you not think that if we stopped that increase in the size of government, in the form of a $1 trillion or so, that we can't balance the budget?

It's certainly true that cutting spending by $1 trillion would result in a balanced budget. Of course, the total discretionary budget (including the entire defense budget) is just a little more than $1.2 trillion, so McCain just has to convince Congress to slash discretionary spending by 83 percent. Alternatively, McCain could convince Congress to couple more modest cuts in discretionary spending with deep reductions in popular programs like Social Security and Medicare. Historically, wagers that either of those things would happen have been imprudent investments.

Factcheck.org: The Budget According to McCain | U.S.