Wednesday, December 5, 2012

Government Spending Cuts are a Mirage ... Increasing Spending from $100 to $103 is Counted as Going from $100 to $98


{NOTE: Do you consider yourself good at simple math? Then consider this one. Government spends $100 this year. It then spends $103 next year. The politicians count that as a cut in spending of $2 instead of the actual $3 increase that it is. And that's how $103 = $98. We'll discuss this government sleight of hand game playing and non-truth telling charade below. After all, it's the 'law' of the government land.}

Since 1974, both political parties have engaged in a game of charades when it comes to how much the government is spending or promising to spend. There are the usual suspects, of course, such as unfunded entitlement promises, unfunded student loan guarantees, unfunded home loan guarantees, unfunded postal service obligations and the list goes on.

But that's not what needs clarifying. With all the back and forth political B.S. bickering surrounding the fiscal cliff discussions, it's time to set things straight. There will no spending cuts, and neither party will even propose any. It's only a question of how much spending will increase.

Thus, don't look for fiscal sanity or straight talk to come to the forefront in these fiscal cliff negotiations or in any foreseeable future negotiations either. Scoring an increase as a cut is government's way of avoiding telling We the People the truth.


Briefly, baseline budgeting is an accounting gimmick used by government. It doesn't represent reality. {NOTE: And it's not at all the same thing as zero based budgeting.}

In baseline budgeting, any slowdown in the rate of spending growth is counted as a cut in spending. How's that for absurdity?

Roughly it works as follows: (1) The current level (run rate) of spending at the end of the year times (2) the estimated inflation rate for next year times (3) the estimated population growth for next year is used as the baseline for next year's budget. That is counted as ground zero or the starting point, ridiculous as it is.

So if government actually spends $100 this year but is at an annualized running rate of $102 at year end due to new programs and such, and next year's inflation is estimated to be 2%, and population growth of 1%, that's roughly $105 compared to the $100 we'll spend this year. 105=100 in government budgeting speak. It's crazy but that's the way it's done.

Then if government actually spends $103 next year, or 3% more than we spend this year, we'll be told  that is a 'drastic' $2 spending cut.

Even though it's a $3 or 3% increase, the politicians will count it as a $2 or 2% cut. And then that's what they'll tell We the People. Isn't that sickening?

The Budget Baseline Con is subtitled 'How Washington fools the public about spending 'cuts.'' And that's how spending $103 this year compared to the $100 spent last year becomes a $2 spending cut instead of a $3 spending increase. Before the year even began, the 'baseline' spending was increased to reflect the likely amount should no changes to the budget occur. Here's the story:

" . . . President Obama and John Boehner are playing by the dysfunctional Beltway rules. The rules work if you like bigger government, but Republicans need a new strategy, which starts by exposing the rigged game of "baseline budgeting."

Both the White House and House Republicans are pretending that their goal is "reducing the deficit," which they suggest means making real spending choices. They are talking about a "$4 trillion plan," or something, regardless of how that number is reached.

Here's the reality: Those numbers have no real meaning because they are conjured in the wilderness of mirrors that is the federal budget process. Since 1974, Capitol Hill's "baseline" has automatically increased spending every year according to Congressional Budget Office projections, which means before anyone has submitted a budget or cast a single vote. Tax and spending changes are then measured off that inflated baseline, not in absolute terms. . . .

The baseline scam also exists in many states . . . .

In Washington, Democrats designed this system to make it easier to defend annual spending increases and to portray any reduction in the baseline as a spending "cut." . . .

Republicans used to object to this game, but in recent years they seem to have given up. In an October 2010 speech at the American Enterprise Institute, House Speaker Boehner proposed that "we ought to start at square one" and rewrite the 1974 budget act. But he then dropped the idea, and in the current debate the GOP is putting itself at a major disadvantage by negotiating off the phony baseline. In a press release Tuesday, his own office advertised the need for "spending cuts" that aren't even cuts.

If Republicans really want to slow the growth in spending, they need to stop playing by Beltway rules and start explaining to America why Mr. Obama keeps saying he's cutting spending even as spending and deficits keep going up and up and up."

Summing Up

Now you know how $103 becomes the equivalent of $98 in spending when compared to this year's actual expenditures of $100.

A 3% increase is represented to be a 2% decrease.

And that's why we shouldn't expect the politicians to do anything meaningful to bring our out-of-control budget deficits into balance anytime soon.

And that goes for Remocrats and Depublicans alike.

The games they play with our money, our future and the future well being of Americans are just plain awful. At least that's my take.

Thanks. Bob.

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