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Reid’s VooDoo War Savings

Sen. Harry Reid’s debt reduction plan – endorsed by President Obama last night – includes $1 trillion in “spending cuts” from the planned drawdown of the wars in Iraq and Afghanistan. That’s more than a third of his entire $2.7 trillion proposed savings.

Needless to say, the ratings agencies aren’t delighted by the proposal to count war savings – which were already expected to happen anyway – as spending cuts. Goldman Sachs circled a memo yesterday warning that the war savings plan could lead to a credit downgrade:

Nearly half of the deficit reduction in Reid’s plan would come from phantom war savings, according to the Goldman memo.

“The (withdrawal of troops from Iraq and Afghanistan) would show up in official budget estimates as savings of about $1.2 trillion versus current law,” the memo reads. “If this proposal were to prevail without a credible follow-on process, a ratings downgrade could ensue, since against most outside baseline budget estimates only the first portion of spending cuts, and not the war spending savings, would show up as deficit reduction.”

Democrats have countered that the Republican-supported Rep. Paul Ryan budget plan also included these so-called war savings. But as Phil Klein notes in the Washington Examiner, “the reality is more complicated.” Because there are varying estimates of what spending levels would look like if they continued unaltered, Ryan’s plan apparently included comparisons of these different baselines. One of the estimates he used was a Congressional Budget Office projection that included war savings.

Phil spoke with Ryan’s communications director Conor Sweeney, who ripped apart the Reid-Ryan comparison:

The CBO current law baseline assumes surge-level spending in Iraq and Afghanistan is scheduled to continue over the next decade. We – most Americans and the credit markets – would think that is a flawed assumption. In the interest of transparency, the House-passed budget does include comparisons to the current law baseline — but we also note repeatedly and consistently the flaws in using this benchmark to exaggerate savings.

Moreover, Sweeney notes Ryan didn’t count the $1 trillion as a spending cut. In contrast, it’s the backbone of Reid’s reduction plan.


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