Posted on 07/28/2011 4:25:30 PM PDT by Para-Ord.45
When the history of the Great Debt Limit Debate is written, one of the key villains will be the definition of "cut." For everyone who lives outside the halls of Congress, "cut" means to reduce. But inside Congress, "cut" means to spend less than your baseline projection of future spending. Since spending always tends to rise by at least the growth of nominal GDP, which has averaged about 5.5% for the past 30 years, the baseline that everyone compares their budget proposals to tends to project increased spending of about 5-6% per year.
Over the past 12 months the federal government has spent $3.56 trillion. A typical baseline would project spending to increase about 5.5% a year, reaching some $6 trillion a year by 2021 (budget scoring generally focuses on what happens over the next 10 years). That would equate to total expenditures of $48.4 trillion over the next decade. So when one party proposes to "cut" spending by, say, $4 trillion, what they really mean is that they propose to spend $44.4 trillion over the next 10 years instead of $48.4 trillion. The $4 trillion "cut" they are proposing actually works out to a 4% annual increase in spending, instead of a 5.5% annual increase in spending.
So even the most radical of "cuts" that are being proposed today would still allow government spending to increase by 4% a year. How hard or draconian is that?
I suspect the great majority of Americans would be stunned to realize that if we allowed government spending to increase by only 2% a year, then we could probably balance the budget in about 7 years, without any need to increase tax rates or actually cut anybody's spending. No real cuts and no real tax hikes are needed to balance the budget within a reasonable time frame. Why is there so much sound and fury surrounding this debate?
(My calculations assume that tax revenues as a percent of GDP rise naturally to about 18% of GDP over the next 7 years, which is close to the long-term average and the same level that was achieved a few years after the Bush tax cuts. Tax revenue as a % of GDP always rises during the expansion phase of a business cycle, and we know that the current level of tax rates can generate 18% of GDP if the economy is healthy.)
UPDATE: Prompted by reader "William" as to why it seems so hard for Congress to do something simple like cutting the growth rate of spending to 2% instead of 5.5%, I offer this explanation: The problem with cutting the growth rate of spending is that CBO scores this as a "cut", and the "cut" that would result from a 2% growth rate in spending would be on the order of $8.6 trillion. My guess is that no congressman or senator would want to be labeled as the guy who "cut" such a gigantic amount of spending. Think of all the kids who would starve, the old folks who would die from lack of medicine, etc. In short, it would be too easy for political opponents to brand the cutter as an evil madman, when in fact he was just trying to be reasonably prudent.
Doesn’t surprise me a bit. These people should be not only out of office; but in prison.
The Democrats have used that argument of “cuts” for decades. Now look where we are. A Real Cut, for a while, would be to pass nothing, and make the gov’t live within its income.
A panel of qualified citizens make the determination from the statistical facts. The makeup of this citizen panel shall be determined independent of Congress, the Executive and the Judicial Department.
Additional details subject to further discussions.
Just take 0bamie’s check book away. That’d do it.
bkmk
It would also be much simpler to explain.
Yes! . . . Thank you.
No kidding! Compared to these politicians (and all the ones we've had for the last 60 years), Bernie Madoff was a piker! And he'll be in prison for the rest of his life. But congress critters get a terrific pension for the rest of their lives, and wind up making millions based on their "public service!"
Mark
You got that right.
Orwellian double speak.
No wonder there is nothing on the internet showing us the cuts for this year. There are NONE. Maybe we should have FREEZE, Cap and Balance and to heck with cutting projections.
I like the idea of a cash budget:
Cash Budget
What Does It Mean?
What Does Cash Budget Mean?
An estimation of the cash inflows and outflows for a business or individual for a specific period of time. Cash budgets are often used to assess whether the entity has sufficient cash to fulfill regular operations and/or whether too much cash is being left in unproductive capacities.
Investopedia Says
Investopedia explains Cash Budget
A cash budget is extremely important, especially for small businesses, because it allows a company to determine how much credit it can extend to customers before it begins to have liquidity problems.
For individuals, creating a cash budget is a good method for determining where their cash is regularly being spent. This awareness can be beneficial because knowing the value of certain expenditures can yield opportunities for additional savings by cutting unnecessary costs.
For example, without setting a cash budget, spending a dollar a day on a cup of coffee seems fairly unimpressive. However, upon setting a cash budget to account for regular annual cash expenditures, this seemingly small daily expenditure comes out to an annual total of $365, which may be better spent on other things. If you frequently visit specialty coffee shops, your annual expenditure will be substantially more.
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