Gimmicks

Faking it

When Congress can’t find real money to pay for laws, it turns to gimmicks. A guide to the top offenders.

By Danny Vinik

When Congress was negotiating an 11th hour budget deal last December, it faced a big challenge: how to keep agencies funded while staying within its budget caps. To do so, lawmakers cut more than $6 billion from the Children’s Health Insurance Program, and used that money to pay for other programs.

Just one problem: that $6 billion “cut”? It was never going to be spent in the first place.

If that sounds like a gimmick, it is. Passing a law isn’t easy, and one reason is the current political reality that new laws have to pay for themselves. So if a law allocates $20 billion for a new program, it has to find that $20 billion somewhere else. And if it can’t—well, it has to seem to.

Look inside any law in the works, whether the defense spending bill, or the 21st Century Cures Act, or the highway trust fund, and there’s a good chance that somewhere inside lurks a special bit of Washington know-how: the budget gimmick. Lawmakers have found all kinds of ways to make money show up on the government balance sheet, regardless of whether it’s really there.

Some laws push their costs far into the future, when they become technically invisible to budget scorekeepers; others find money in some awfully suspicious places, like by cutting nonexistent Medicare programs. “They’re a grease,” said Chauncey Goss, a former senior aide to Rep. Paul Ryan (R-Wis.) when he chaired the House Budget Committee. “They make it easier to reach agreement on things, and it’s a little bit of a wink and a nod. That keeps the system moving, for better or for worse.”

Of course, there’s always a cost: someone ends up paying, whether it’s today’s taxpayers or—often—future Americans, who end up on the hook when the money doesn’t quite materialize. The Agenda decided to take a look at the best-known gimmicks on Capitol Hill, and who’s likely to end up paying the tab.

1. Pension smoothing

Ask anyone in Congress to name a budget gimmick, and “pension smoothing” is almost always at the top of the list. Pension smoothing is what you might call a timing gimmick, claiming money now and paying it back later. To help fund a program, Congress includes a provision that lets companies contribute less to their pension funds in the short term if they promise to make up the gap in the long term. Companies take the bait because it allows them to claim higher profits in the next few years. The government likes it because those profits boost tax revenues, bringing in real money, now.

Who loses? The future. Companies will have to contribute more money downstream, reducing their profits, and the government loses those future revenues. But that’s a problem for the next CEO, and another Congress.

Pension smoothing was last used in 2014 to prevent the highway trust fund from running out of money (The fund is supposed to be replenished by gas taxes, but Congress wouldn’t raise those). Now it may be off the table for a while. During a meeting earlier this summer to discuss funding options for highway projects, one Republican aide told me that a senator remarked, “I think the pensions are sufficiently smoothed.” In other words, on to the next gimmick!

2. Selling oil at inflated prices

To pay for a long-term highway bill this summer, Senate Majority Leader Mitch McConnell (R-Ky.) and Sen. Barbara Boxer (D-Calif.) want to sell off oil from America’s strategic reserve supply. So how much will it bring in? Thanks to technicalities with the Congressional Budget Office’s scoring rules, the budget office calculates the revenues using a price of oil around $90 a barrel, as it was near most of 2014. More recently, however, the price has plummeted—making much of that money illusory. But lawmakers can still count the full amount as a way to make the highway numbers work out.

3.  Off-the-books defense funding

How does Congress keep paying America’s military bills when the sequester puts strict caps on Pentagon spending? It turns to a special emergency account called Overseas Contingency Operations, designed to let the government fund unplanned needs, like a war. But Congress has started to use it as a piggy bank for defense spending, whether there’s an emergency or not.

In fiscal 2014, the OCO gave the Pentagon an extra $87 billion that didn’t count as normal budget spending. Hawks in Congress have used it to keep more than $1.7 trillion in defense spending off the books since 2001. President Barack Obama isn’t a fan of this accounting metric: Although he has signed bills appropriating money into the OCO account in the past, he recently threatened to veto the annual defense policy bill because it included this gimmick.

4.  Spend now, cut later

Another way for lawmakers to avoid making hard decisions is to raise spending now in return for cuts years in the future. This was the tactic Ryan and Sen. Patty Murray (D-Wash.) used in their 2013 budget deal to relax the spending caps imposed by the 2011 sequester. To partially offset those spending hikes, Ryan and Murray extended sequestration’s cuts to mandatory spending an additional two years to 2023. More money now, less money later—and again, a difficult decision is punted to a future Congress.

Whether this tactic is technically a “gimmick” is hotly debated. Fiscal conservatives believe the cuts a decade from now will never materialize and thus aren’t real. However, supporters of Ryan-Murray disagree: It put a genuine limit on future spending, they say, and if lawmakers do want to replace sequestration in 2022 and 2023 they’ll have to find a way to pay for it.

5.  Convert that IRA!

If pension smoothing works for companies, why not for individuals? A Roth conversion allows people to convert their traditional, tax-deferred IRAs to Roth IRAs, which require tax payments immediately instead of when the money is withdrawn. Whenever Congress passes a law making it easier for Americans to make such a conversion, it brings in quick money right now at the expense of some future budget. The policy was last used in the 2013 deal to avert the “fiscal cliff,” bringing in $12.2 billion over 10 years. Bland as it sounds, this kind of money-shuffling infuriates many observers. “The Roth-type gaming is worse than fake money,” Chye-Ching Huang, a senior tax analyst at the Center for Budget and Policy Priorities, wrote in an email. “It’s tax cuts masquerading as revenue.”

6.  Fun with CHIMPs

CHIMP stands for Changes in Mandatory Programs, and takes advantage of the fact that there are really two kinds of government spending—“discretionary,” which is the stuff that Congress budgets for, and “mandatory,” the big entitlement programs like Medicare and Social Security. If lawmakers can reduce some spending on the mandatory side, they get to spend more money on the discretionary side.

Makes sense, right? Except often, those mandatory savings are fake. Lawmakers will find bits of mandatory funding that was never going to be spent in the first place and “rescind” it, or they’ll push that funding into the following fiscal year and bump up discretionary spending by an equal amount. Technically speaking, that’s a “budget-neutral” move. But in both cases, actual spending rises.

CHIMPs have increasingly become a favored tool in Congress, reaching around $20 billion in the CRomnibus spending bill for fiscal 2015, according to the Committee for a Responsible Federal Budget. Sen. Mike Enzi (R-Wyo.) has tried to crack down on CHIMPs in his first year chairing the Budget Committee. But he’s run into resistance from Democrats who admit that CHIMPs are cumbersome but argue that they were assumed to exist when the budget caps were passed. Banning CHIMPs now, they say, would be changing the rules in the middle of the game.

7.  The next great idea: Still searching

When I started asking staffers and former Hill aides about their favored budget gimmicks, I expected to find a treasure trove of unknown little tricks that budget wonks use to skirt the budget caps. But I didn’t. Gimmicks are certainly prominent on Capitol Hill but, for the most part, the main ones have been around forever and everyone in the Washington budget world knows them. Finding new pots of fake money is just not that easy.

“If you look, these things are used over and over again. They’re not secrets. The people who know them know,” Goss said.

“Everyone is looking for the golden bullet in budgeting,” he added, “and it doesn’t exist.”