Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How Budget Baselines Hide Trillion-Dollar Spending Increases
Transcript
- Lucas: So last May, the House passed a budget resolution that claimed to cut spending by two trillion dollars over ten years. That was the headline. But when you actually looked at the CBO score, the same resolution increased spending by four hundred billion. Luna: Wait — how can a plan that cuts two trillion also increase spending? That doesn't add up. Lucas: It's because of how Congress measures cuts. They don't compare to current spending. They compare to a projected baseline — a future path where essentially every program grows automatically every year, usually by inflation plus population growth. Luna: So the baseline is like a moving target. A cut relative to that baseline might still be more than we're spending today. Lucas: Exactly. And that's the trick. The Congressional Budget Office has to produce these baselines by law — they project what spending would look like if current laws continue. And current laws include automatic increases for Social Security, Medicare, Medicaid, things like that. Luna: But aren't those increases baked into the law? So the baseline is just reflecting what's already on the books? Lucas: Yes, but here's the rub: a lot of those automatic increases aren't actually automatic forever. For example, the tax cuts from 2017 were set to expire at the end of 2025. Under the baseline, the CBO assumes they do expire — meaning revenue jumps up. So if Congress extends them, it looks like a tax cut, even though taxes aren't going down from today's level. Luna: Okay, so the baseline can make extending current policy look like a cost. That seems backwards. Lucas: Right. And it works the same way on the spending side. The baseline assumes Medicare doctor payments get cut every year — but Congress always overrides that. So when they finally override it, it looks like new spending, even though the doctors were always going to get paid. Luna: So the baseline is basically a fantasy scenario that makes anything Congress actually does look more expensive or more fiscally responsible, depending on what they want. Lucas: You've nailed it. And this is why the numbers in budget debates are so confusing. The same plan can be called a two trillion dollar cut by its supporters and a four hundred billion dollar increase by its opponents — and both are technically correct, because they're using different baselines. Luna: That's deeply frustrating for anyone trying to follow the news. So how do we actually know what's happening to spending? Lucas: The cleanest way is to look at actual outlays — dollars spent — not percentage of GDP, not baseline adjustments. But even that gets messy because of timing shifts. A better measure for the long term is spending as a share of GDP. That adjusts for inflation and growth. Luna: And what does that show? Are we really cutting or increasing? Lucas: Over the last decade, spending as a share of GDP has risen from about 20 percent to over 24 percent, excluding pandemic years. So despite all the talk of cuts, the government is taking up a larger share of the economy. And the baseline game is a big reason why that's not more obvious. Luna: It sounds like the baseline is a convenient fiction that lets politicians claim credit for fiscal restraint while the debt keeps growing. Lucas: That's exactly right. And frankly, that kind of clarity is why we do this show. If walking through the economy with us has made something click, I'll just mention: listener support is what keeps this ad-free and accessible. A couple of dollars a month — buy me a coffee dot com slash fexingo — genuinely makes a difference. No perks, no pressure, just helps us keep going. Luna: Yeah, and honestly, this podcast costs very little to run, so even small contributions add up. It's a nice way to say 'I got something out of this'. Lucas: Exactly. So back to baselines — let's talk about a specific example that really shows how the game works: the effort to cut ten percent from a major entitlement program a few years ago. Luna: Which one? Lucas: In 2023, there was a proposal to cut ten percent from the Supplemental Nutrition Assistance Program — SNAP, formerly food stamps. Under the baseline, that program was projected to grow by about twelve percent over the next five years due to inflation and demographic shifts. Luna: So a ten percent cut relative to current spending would still be a two percent increase from today's level, but relative to baseline it's a huge reduction. Lucas: Bingo. The CBO scored that as a seventy-eight billion dollar cut over ten years. But actual spending would still go up by about fifteen billion. So the lawmakers could say 'we cut SNAP by seventy-eight billion' and it sounds dramatic, but families on the ground would still see benefits rise slightly. Luna: And that's a pattern across the budget. The more generous the baseline assumptions, the bigger the claimed cuts can be. Lucas: Yes. And different baselines can be used for different purposes. The president's budget uses its own baseline — often with more optimistic economic assumptions. Congress uses the CBO baseline. And there's a current-law baseline versus a current-policy baseline. Luna: Current-policy baseline assumes that expiring provisions get extended, right? So that's much higher spending. Lucas: Exactly. And that's what many fiscal hawks prefer, because it shows the true cost of continuing everything. But the official scorekeeping is done on a current-law basis, which can obscure the real trajectory. Luna: So when we hear about a 'ten-year deficit reduction package,' we should ask: compared to what baseline? Lucas: Always. And the answer often reveals that the package doesn't reduce the deficit at all — it just reduces the increase. There's a huge difference between cutting spending and slowing its growth. Luna: And slowing growth is still useful, right? If we're on an unsustainable path, slowing down helps. Lucas: Absolutely. But we should be honest about what we're doing. The baseline game makes it hard for voters to hold politicians accountable. You can promise cuts, deliver increases, and still claim victory because of the accounting. Luna: Is there any push to reform the baseline? Like, to make it more honest? Lucas: There have been proposals — some want to use a current-policy baseline as the primary score, others want to require two scores: one under current law and one under current policy. But neither party really wants that because the ambiguity is useful for both sides. Luna: Right — Democrats can claim to protect programs from 'cuts' that are actually just slower growth, and Republicans can claim to slash spending that's actually increasing. Lucas: Exactly. It's a bipartisan game. And as long as the baseline remains the official yardstick, you'll keep seeing headlines about trillions in cuts that never materialize. Luna: So the takeaway for listeners: whenever you see a big round number in a budget fight, ask what it's measured against. That simple question cuts through most of the spin. Lucas: Exactly. And that might be the most valuable thing you learn today. The numbers aren't lying — but the frame they're presented in can be.