Where Are The Spending Cuts?
An article in the Christian Science Monitor today raises an oft heard question among conservatives in debates over spending cuts.
That question is:
Why is it that when conservatives agree to “compromise” by allowing tax hikes to get spending cuts, they always get the tax hikes but never get the spending cuts?
In this article I’ll accurately answer that question.
Today’s CSM article is here:
“The Debt-ceiling crisis: Why won’t Republicans compromise?“
– Christian Science Monitor, 7/30/2011
The Sappenfield Mistake
In his article, staffer Mark Sappenfield reminds us that in 1982 and 1990 when Republicans agreed to “compromise” by giving Democrats tax increases in exchange for spending cuts that the Democrats got their tax increases but Republicans never got their spending cuts.
Regarding the promised 1982 spending cuts Sappenfield quotes Ronald Reagan:
“Congress never cut spending by even one penny” – Ronald Reagan
He does not bring this up in his article, but should have…
To justify his request for a “balanced approach” – current Democratspek for raising taxes – President Obama quoted Ronald Reagan about the 1982 tax increases Reagan agreed to:
“Would you rather reduce deficits and interest rates by raising revenue from those who are not now paying their fair share, or would you rather accept larger budget deficits, higher interest rates, and higher unemployment? And I think I know your answer.”
-Ronald Reagan, Billings Montana, 8/11/1982
Reagan got sucker punched by Democrats in 1982. Conservatives have not forgotten that.
Basically, Sappenfield contends, that is why Republicans won’t “compromise”. They simply don’t believe Democrats will follow through with the cuts
Sappenfield is wrong. Conservatives both do and do not get their cuts.
Allow me to explain this puzzling paradox…
What is a Spending Cut?
If you or I had a problem with a growing credit card balance and were starting to get seriously worried about making ends meet then we’d sit down at the kitchen table with all our bills scattered out in front of us and tally up how much we are spending.
(OK, maybe you’d let Quicken do that for you on your computer)
If we find that the credit card balance and the interest we have to pay on it every month is the problem then we’d try to figure out what to do about it.
We might decide that if we dropped the three premium movie channels for our big screen HDTV and turned in the smart phones for much cheaper – GASP! – ‘regular’ cell phones then we could take the savings and apply that toward paying down the credit card bill.
Those savings are realized immediately the very next month.
Those are examples of spending cuts.
What is a Government Spending Cut?
There are fundamental differences between our kinda spending cut and the federal government’s kinda spending cut.
Among them are:
- The spending cut is not immediate
- It is calculated from budget projections, not from actual outlays
- It is calculated spread over 10 years
In other words, a government spending cut is more like a weather forecast of future spending than what you and I do at the kitchen table with real dollars and cents.
The CBO is the budget forecaster. The current 10 year forecast which is the anchor point in the current fuss over raising the debt ceiling between the Boehner and Reid plans right now is called the “CBO’s March 2011 Baseline Budget Projections“
The promise of a government spending cut is that if we accurately forecast future real spending then we can impose limits on that spending which results in real cuts and real savings in real dollars and cents.
Sounds great, right?
Government Spending Cuts Can’t Be Accurately Forecast
If you believe everything works just as described in the last section then I have an investment deal for you on some bridge property in Lake Havasu City, Arizona that I will let you in on at the ground floor.
As with any weather forecast a budget forecast can be wrong. In fact, the CBO’s is wrong far more often than the weather forecast.
I doubt the CBO has ever made an accurate 10-year forecast. There are to many unknown variables. That is a big, big problem.
For example, in the year 2000 the CBO’s 10-year forecast was for a $5.7 trillion budget surplus… enough to pay off the national debt! Instead, we had a $5.1 trillion deficit.
That is a whopping $10.8 trillion mistake!
CBO budget projections are always, without exception, optimistic to the point of being absurd such as in 2000.
Another example… the actual cost of Medicare in its first 10 years was 8.8 times MORE than the CBO’s 10-year forecast! A similar fate, unfortunately, awaits Obamacare.
At the Rotten Core of a Government Spending Cut
When you combine optimistic CBO forecasts with its propensity for error then you have the perfect ingredients for political fraud.
Here is how it works…
The CBO makes its usual rosy budget forecast. The politicians then make a minor reduction to a program, doesn’t matter which, and the cost savings is projected out to 10 years, tallied, and then subtracted from the budget forecast.
That is proudly reported as a “spending cut”.
That is where those impressive sounding numbers like $4 trillion in “spending cuts” promised by President Obama’s “grand plan” come from.
What is hidden is that it begins with only a tiny real dollar spending cut and that tiny cut is projected into a big “spending cut” over the years.
Most of the spending cut benefit, of course, are years and years in the future.
For example, Obama’s $4 trillion in “spending cuts” is only about 4% of the CBO’s total projected budget of $45.77 trillion over the next 10 years. Obama’s cuts don’t sound nearly as impressive now, do they?
The CBO’s March 2011 budget projection has a yearly average growth of 6.1% annually built into it from 2011 through 2021.
In other words, me… little ol’ azleader… could simply allow for a 2.1% INCREASE in the budgets of all programs over the next 10 years and still claim a $4 trillion “spending cut” just like Obama!
Heck, I don’t even have to cut a single penny from next year’s budget!
I’m a genius!
I don’t have the headaches of deciding which programs to cut, I can increase spending every year for every program and still make $4 trillion in “spending cuts”.
Where is my Nobel Prize in Economics?
Washington DC politicians use newfangled math to calculate “spending cuts”. Its a theory of math uniquely all their own. Its DC Math!
You make a rosy budget forecast and then calculate your “spending cuts” by adding up the money that you will never get or spent in the first place.
They are phantom “spending cuts”. The money isn’t real.
The competing Boehner and Reid debt-ceiling plans that we will hear debated ad nauseum over the next days both have similar “spending cuts”… and they only cut 2%.
Their cuts are even less real than the Obama “grand plan” cuts are. In both plans budgets still are allowed a 4.1% increase in spending every year. That is well above current inflation!
But a tax increase is real. It happens right now, just like when we cancel our three premium TV channels and go back to a regular cell phone to pay down our credit card.
And that is why conservatives never get the “spending cuts” they ask for. The tax hikes are real, the “spending cuts” are not.
And that, folks, is why conservatives don’t want to compromise!