A Promise Broken on a budget offset

To demonstrate his commitment to fiscal responsibility, Barack Obama promised during his campaign that he would offset the costs of his national service plan with savings from changes in tax law and ending the war in Iraq. It’s Promise No. 379 in our database.

Unfortunately, that would require bookkeeping gymnastics that are not permissible. We’ve also seen no public statements or comments by President Obama or congressional leaders that indicate he has truly made a commitment to pay for the plan.

During the campaign, Obama said that the cost of the national service plan, estimated at $3.5 billion per year, “will be paid for in part by canceling tax provisions that would otherwise help multinational corporations pay less in U.S. taxes starting in 2008 by reallocating tax deductions for interest expenses between income earned in the U.S. and income earned abroad. The rest of the plan will be funded using a small portion of the savings associated with ending the war in Iraq.”

The bulk of the national service plan that Obama promised was signed into law as the “Edward M. Kennedy Serve America Act” and is now run by the Corporation for National and Community Service, which received $1.149 billion from Congress for 2010, $260 million more than the previous year when the Serve America Act was not incorporated into their budget. But Obama’s promise to offset those costs is impossible to keep. The problem is that current budget rules do not allow for programs like the national service plan to be offset by either tax increases or a decrease in spending in Iraq.

The federal budget has three main sections: discretionary spending, emergency spending, and taxes and entitlements. Budget rules do not allow an increase or decrease in one of those areas to offset another. Yet Obama incorporated a part of each section to create a scenario that is prohibited by the rules.

The Serve America Act was passed under the discretionary budget, which means neither a tax increase, nor a decrease in emergency spending on the war in Iraq can offset the costs associated with the law.

Furthermore, the Iraq war is largely paid for by what Congress considers emergency spending. That means it is considered an additional cost above the actual budget and cannot be used for an offset.

Brian Riedl, an expert in the federal budget at the Heritage Foundation, a conservative think tank, said it was not realistic for Obama to promise he could offset the cost of his national service plan using the reduction of forces in Iraq.

“Obama is basically saying ‘since we will have fewer emergencies next year, we’ll just increase regular spending faster,’ ” Riedl said.

Marc Goldwein, policy director of the Committee for a Responsible Federal Budget at the New America Foundation, a liberal think tank, says his committee “[does not] believe you should be able to use savings from the Iraq war to fund new spending – period.”

As far as paying for the national service plan with savings from the tax law changes, not only is that not possible under current budgetary rules, but, according to Bob Williams of the Tax Policy Center, the taxes Obama proposed have not been enacted.

Of course, the rules are one thing. But when Obama signed the bill into law he could have highlighted his commitment to fiscal responsibility by explaining how he would pay for the plan. Even though he was restricted by budget rules, he could have emphasized that significant cuts or tax increases would pay for the plan. But a review of his comments shows he did not. He spoke of the tremendous impact citizens could have “in the work of remaking this nation,” but he said nothing about the fiscal impact or any hard choices he was making to pay for it.

The White House says parts of the president’s overall national service plan are still working their way through Congress, and within the overall budget the president proposed many offsets.

However, the fact remains that President Obama made no specific mention of how he planned to pay for the Serve America Act, which encompasses most of his goals for his national service plan.

Had he indicated in some way that he was serious about a budget offset, we might have rated this as a Promise Kept or a Compromise. But we see no evidence the administration has pursued any such plan. So we rate this a Promise Broken.