Beware Of Spending Cut Gimmicks

All of the attention in Washington these days is focused on the unconstitutional Joint Select Committee on Deficit Reduction, aka the Super Committee, whose deficit reduction report is due by November 23.  Seemingly forgotten in all this is the fact that the latest Continuing Resolution (CR) that is required because Congress cannot agree on a budget expires @ midnight on November 18.  The CR has become the standard way the federal government is funded.  We have had several CRs during the last twelve months – but no actual budget.

The Super Committee needs to agree by November 23 on deficit reduction of $1.2 trillion over the next ten years, or if Congress doesn't approve a bill by December 23, automatic across-the-board spending cuts will be triggered on December 23 that start in January 2013.  (BO has said he will veto any measure that does not include @ least $1 trillion in tax increases.)  Programs such as Social Security, Medicaid, food stamps and veterans' benefits are not included in any potential cuts.  Potential Medicare cuts pertain to providers only - not senior beneficiaries.

Please be reminded that even an amount of $1.2 trillion over ten years amid all of the trillions that will be spent over that period is not really a significant amount of the total.  Congressman Paul Ryan's budget plan of last April – generally regarded as the most fiscally responsible budget presented - would still increase the national debt by some $5 trillion over the next 10 years and continue $400 billion annual budget deficits through at least 2021. 

All of this is a good barometer to see that the great majority of our elected reps are not taking their fiscal responsibilities seriously – they are just kicking the can down the road @ our expense & hope to be retired themselves before the people who are relying on all of the government programs they have promised have the rug pulled out from under them – how cruel.

As November 23 approaches we had better watch for more gimmicks rather than substantive spending cuts.  Please watch this short video prepared by Tea Party Patriots that shows how some of these gimmicks work.

Also the op-ed below from the November 15 WSJ provides an excellent illustration re how to reduce the deficit if we really want to.  This is especially important as we just reached another milestone into uncharted waters – the national debt just topped $15 trillion.

A Short Econ Quiz for the Super Committee By Steven E. Landsburg

Why an extra trillion in 'irresponsible' deficit spending can't become 'responsible' if paid for by higher taxes.

Suppose that year after year, you spend more than you earn. You are worried that you've become fiscally irresponsible. Which of the following could be paths back to fiscal sanity for your household?

A) Spend less.

B) Earn more.

C) Stop at the ATM more often so you'll have more cash in your pocket.

Do we all understand why C is a really bad answer? Good. Now let's try another one.

Suppose that year after year, your government spends more than it collects in taxes. You are worried that it's become fiscally irresponsible. Which of the following could be a path back to fiscal sanity for your government?

A) Spend less.

B) Collect more tax revenue.

Spending less—at least spending less on things you don't need—can be a first step toward sanity for a government just as it can for a household. So A is a pretty good answer. What about B?

As the deadline looms for the congressional super committee, there seems to be a growing sense that tax revenue for the government is like income for the household. That's wrong. Raising taxes is nothing at all like earning income. Instead, it's a lot more like visiting the ATM.

The government's debt is the American people's debt. If we pay down that debt through higher taxes, we will, for the most part, pay those taxes by drawing down our savings. That's no more "responsible'' than drawing down those savings to finance overconsumption within the household.

If you buy a kayak you don't need and can't afford, you're unlikely to placate your spouse by saying "Don't worry, dear, I withdrew the money from our retirement account.'' If your government insists on maintaining social programs we don't need and can't afford, nobody should be placated by a congressional agreement to finance that program with money withdrawn from those same accounts.

Here's another way to say essentially the same thing: The government's chief asset—in fact, pretty much its only asset—is its ability to tax people, now and in the future. The taxpayers are the government's ATM. Make a withdrawal today, and there's less available tomorrow.

Now the ability to tax is a pretty huge asset and the government has not (yet!) come close to depleting it. In that sense, there's a lot of money in the bank. But no matter how much you've got in the bank, a policy of ever-increasing withdrawals is nothing at all like a decision to earn more income. It's important to get the analogy right. And it's clear from the blogs and the op-ed pages that not everybody gets this.

Instead, the notion persists that an extra trillion in federal spending can be converted from "irresponsible'' to "responsible'' as long as it's accompanied by an extra trillion in tax hikes. That's like saying a $500 haircut can be converted from "irresponsible'' to "responsible'' as long as you withdraw the $500 from your bank account. If the super committee loses sight of this fundamental truth, it is doomed to fail.

Mr. Landsburg, an economics professor at the University of Rochester in New York, is the author of, among other books, "The Armchair Economist" (Free Press, 1995). He blogs at TheBigQuestions.com.