James Pethokoukis Is Completely Wrong: The Obama Budget Math Does Add Up
It started with a Wall Street Journal story from yesterday that said the White House either is considering not spending all of the TARP money that remains unspent or doesn't think it's going to need to spend the funds because the situation is improving faster than expected. As a result, it may be able to lower the projected 2010 deficit and the amount the government will have to borrow. Here's the money quote:
Agreeing not to spend a certain amount of TARP money will enable the White House, in its budget projections, to assume less money out the door and, therefore, less debt issued. The move would also reduce the deficit by an unknown amount since a certain level of spending and borrowing is already factored into estimated future deficits. (Italics are mine).
But over at his own blog, my good friend James Pethokoukis, says this is wrong and that the math "doesn't add up." He even finds someone to validate his headline who is quoted saying about that unspent TARP funds ...can't be used as deficit reduction because the money has not been spent yet."
First, as the WSJ story says, the White House is talking about the current fiscal year -- 2010 -- and it has already made an estimate of the spending that will occur and the revenues that will be collected. What the administration is saying now is that some of the spending it projected might not be needed and, if so, that it is planning not to find some other use for the funds. As a result, the projected deficit and the amount the government was expected to borrow could be lower, in this case at least $100 billion or so lower, than was originally assumed.
Second, you might want to find a better source to validate your headlines. You definitely can reduce the projected deficit and the debt by not spending funds that were projected to be spent. That, in fact, is how you do it. Spending that has occurred has already increased the deficit and the only way to reduce it in the future is not tto continue to spend the dollars again.
Third, I thought you were in favor of spending cuts. Isn't that what you prefer the White House do in this case if there is no other need for TARP?
Fourth, why didn't you call me to explain?
This actually is a fairly typical situation in the budgeting world. Every budget ( your personal budget, your little league team's budget, and the federal budget, etc.) based on certain assumptions and the bottom line usually continually changes as events happen differently from what you expected.
It could be that you assumed your adjustable rate mortgage would increase by 2 percentage points but it actually only goes up by 1 because of lower-than-expected rates. If you don't spend the difference your savings will increase or your debt will go down.
It could also be that the price of gasoline is more than you expected so the cost of getting the little league team to its games will be higher.
It could also be that the war you assumed would last through the whole fiscal year was actually over 6 months before the year ended.
Or it could be that the TARP funds you has assumed would be spent are not needed because the economy is performing better than expected, Wall Street is recovering faster, and repayments from the institutions that got a bailout are happening sooner.
A question should be asked about whether the Obama administration deliberately overestimated how much TARP would cost in 2010 so that it would be able to claim savings later in the year. This has been a favorite tactic of Office and Management and Budget directors in the past. Indeed, everyone from David Stockman to Dick Darman to Leon Panetta liked, and it was clearly something that the G.W. Bush administration used with impugnity.
But regardless of whether it was intentional or fortuitous, not spending TARP money that had been projected to be spent will in fact lower the deficit and the amount of government borrowing compared to what otherwise would have been spent.
Contrary to what Pethokoukis said, that means the math does in fact add up.
Wait. There's More. Here's what I said yesterday on Marketplace on this subject: