Cuts? What Cuts?

The latest enactment of kicking the fiscal can down the road in Washington is drawing to a close. As with the “debt ceiling crisis” last summer, the current version of the Potomac Follies will likely end quite the same. Unable to agree on measures to actually reduce the federal debt, the Democrats and Republicans in Congress voted to create a “Super Committee” that would come up with a minimum of $1.2 trillion in deficit reductions that would then be voted on unamended by both chambers of Congress. The deadline placed on the Super Committee to forward its recommendations to Congress is November 23—just a few days from now.

The committee appears to be hopelessly deadlocked. The six Democrats demand “significant” tax revenue increases (code words for Republicans to agree to end the Bush tax cuts for the “wealthy”) in order for them to make any concessions on entitlement spending reductions. The six Republicans demand strong levels of reduced spending on entitlements and discretionary spending and have offered increased revenue proposals in the $250-$300 billion range. The Democrats say that is unacceptable.

It appears at this point that there are two possible end-game scenarios to the current fiscal shenanigans. First, the committee could simply punt again. The members could agree on arbitrary figures for spending cuts and tax increases and simply toss those “targets” to the congressional committees to fill in the blanks with concrete proposals. That would be the cowardly way out, but considering the fact that Congress is lacking in strong leadership, there is a decent chance that could happen.

The second alternative is that the Super Committee will simply develop no recommendations whatsoever to send back to Congress for the up or down vote. If that is the case, the legislation that created the Super Committee farce calls for an automatic sequestration of $1.2 trillion in spending, roughly half from the defense budget and half from other areas of the budget. The sequestration was designed to put pressure on Republicans to avoid the defense reductions and Democrats to avoid entitlement spending reductions.

The key words here are “spending reductions.” There is a world of difference between a reduction in spending and a budget cut. Everyone should realize that no one in Congress is actually proposing reducing the current levels of spending that have driven the federal debt above the $15 trillion level this week, rapidly on its way towards the unsustainable level of $20 trillion. Let’s repeat that: No one in Congress (and certainly not in the White House) is proposing to freeze spending at current levels, much less reduce actual levels of spending, in order to stabilize the rapidly escalating levels of federal debt.

So what happens if the “horror of horrors” occurs and the sequester goes into effect? Probably nothing. It doesn’t commence until 2013 after the next elections. The current Congress can’t bind the actions of future Congresses. At that point Congress could simply choose to ignore the sequester totally or in part. But what if it did take place?

According to the Mercatus Center for economic research at George Mason University, without the sequester, the federal spending would rise from $3.69 trillion to $5.41 trillion by 2021. With the sequester, federal spending would increase to $5.26 trillion. That means that without the sequester, federal spending would increase $1.7 trillion; with it, $1.6 trillion. No one should apply the word “cut” to that huge level of spending increases. Put in other terms, with the sequester defense spending would increase 18 percent instead of 20 percent; Medicare and non-defense discretionary spending would increase 12 percent instead of 14 percent; and interest on the debt increases 136 percent instead of 152 percent.

Millions of Americans are out of work. Millions more have seen their wages frozen or reduced. More still are “upside down” in their mortgages and are fearful of losing their homes. I would hate to be the politician trying to explain to those folks that increasing federal spending by $1.6 trillion instead of $1.7 trillion in the next 10 years is unthinkable.



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