Did you ever wonder why when the government decides to increase spending it happens next week but when they talk about reducing spending it’s always in budget cycles five to ten years out? Does that really make any sense?
I really only care about what they will cut in their next budget and the one after that because there is some likelihood those same elected officials will still be around to be held accountable.
The Super Committee is agonizing about reducing spending somewhere in the neighborhood of $1.2 trillion over ten years. Considering the fact that federal spending increases 8% per year and that is considered a “no growth” budget. So what are they cutting the $1.2 trillion from?
Where else in the world could that happen?
If the budget is $2.4 trillion per year in 2011, then a no growth (8%more compounded) budget for 2012 would be about $2.6 trillion; $2.81trillion for 2013, $3.02 trillion for 2014 and on up to a total of about $37 trillion over the next ten years.
Remember, that is how much cash the federal government will spend over the next ten years when they consider an 8% increase in spending a no growth budget. They say they are trying to reduce spending by $1.2 trillion during that ten year period which amounts to about 3.2% of the $37 trillion. And they are agonizing?
I’d settle for a no growth budget being a zero percent increase year over year and no cuts. If they just capped spending at $2.4 trillion per year then over ten years we would only spend $24 trillion instead of $37 trillion.
Then if you consider that the government only takes in $1.8 trillion per year at the current level and that is not subject to the 8% growth rate. Generally a revenue growth rate of 3-4% is considered good and 5% is great. Let’s assume for this simple analysis a growth in revenue of 3.5% per year over the next ten years. Revenue received totals only $21.8 trillion when compounded.
Our current national debt is about $14 trillion and without reducing spending but actually increasing spending 8% year over year and experiencing 3.5% growth in revenue each year our national debt increases by another $15 trillion to about $29 trillion.
And the Super Committee is agonizing about cutting $1.2 trillion. There is also word that they are trying to make a “really big deal” and cut $4 trillion over ten years or slightly more than 10% of the $37 trillion total.
Could this discussion be any more absurd?
We need real spending cuts not a slowing of the growth rate.
If that weren’t bad enough, consider how you react when you are elected to Congress in 2016 and someone trots out this agreement to cut spending in some future budget cycle. Do you feel obligated to cut spending or kick the can to the next guy?
What happens if no future Congresses agree to make the cuts promised in 2011? What obligation does a future Congress have to honor agreements made by the Super Committee?
In a word; NONE.
It would be a good start to adopt a budget because that would indicate that the Senate finally came to the table. It would be better if we capped spending. It would be great if we could actually reduce spending.
I’m thinking I hear a kicking sound!
No Loss for Words 
Only in Government is Cutting Spending Increasing Spending
by Steve DanaIn the course of the lengthy discussion regarding the national debt and deficits I couldn’t help but wonder if we all understood the accepted definitions of terms. In so many cases the same terms were used in different contexts.
For example; the term “budget cuts”? For you and me, a cut to my budget is spending less in the next cycle than I did in the current cycle. For the government cutting the budget is not spending less, it’s cutting the rate of growth of government spending. You and I would spend less, they would spend more, but supposedly decrease the year over year rate of growth. Where did they learn their math?
How about “tax reform”? Is “tax reform” raising rates or changing structure? Republicans tried to focus on cutting spending to reduce current deficits while Democrats wanted to incorporate “tax reform” into the debate to achieve the desired outcome. They seem to think that if a guy can afford a jet he isn’t paying enough tax. According to Democrats, balancing the budget must include both cuts in spending and tax reform. I could go along with that if “reform” meant addressing the tax code in total rather than just raising the rates higher on the folks who are already paying the lion’s share of the taxes already.
In a perverted way, I’ve been amused about the characterization by the “left” that the country is being screwed by the nation’s high earners because they aren’t paying their fair share of taxes; yet according to the Congressional Budget Office 51% of Americans pay no Federal Income Taxes at all. That is Zero Federal Income Tax paid by 51% of Americans but according to the Democrats in Congress, they’re over taxed.
While the top 5% of American earners pay 40% of the Federal Income Tax collected and the top 15% of American earners pay 75% of the Federal Income Tax but according to Democrats in Congress they aren’t paying their fair share. What am I missing? One side pays no tax but is over taxed and the other side pays all the tax but is not paying their fair share.
I think most Americans agree the Tax Code is too complex to be fair. And “fair” is variable that moves back and forth depending on your personal interests. I suspect that if we were given a choice of keeping the current federal income tax system or dumping it all for a flat tax of maybe 8%, most Americans would opt for a flat tax that treats everyone the same. If you earn $100,000 you pay $8,000; if you earn a million bucks you would pay $80,000 and if you earned $25,000 you would pay $2,000. Everyone would pay based upon what they earned (at the same rate). Everyone pays the same rate but based upon their earnings they pay more or less. That sounds like tax reform.
And finally, this agreement between the parties regarding raising the debt limit; the Democrats didn’t get tax increases, but the Republicans didn’t get any meaningful cuts and the President got an agreement to increase the national debt by 20% over the next 18 months. That is another increase of the debt from $14.2 Trillion to $16.4 trillion by election day in 2012. Then factor in the 12 person committee that will either cut a trillion or so in government spending or cut the Defense budget by another $800 Billion. How could Republicans view any of this as a victory? As far as I can tell, this was another huge giveaway to the Democrats. I am baffled how we let this happen.
Posted in Federal Government, Public Budgets | 3 Comments »