Monday, January 14, 2013

...Pants on Fire

Elvis and reality have left the building.

The hyper-partisan rants over the fiscal cliff were just the warm-up act for the triple play looming on the horizon. The triple issues of reining-in the debt limit, resolving the sequester, and extending the FY2013 Continuing Resolution seem to require triple the hyperbole.

Obama and Congressional Democrats are filling the air waves with victorious declarations about already reducing the federal deficit by $2.4 trillion. There are many creative tunes being played for this Conga Line.

The first is the timetable. Those who trumpet the $2.4 trillion only whisper “over the next ten years”. The trillion dollar number sounds large until you compare it to total federal spending of $44 trillion over the next ten years. That is a “whopping” 5.4% reduction in total spending. This assumes that the current decisions somehow bind four future Congresses and the next President.

Let’s look at the spending “cuts”. Obama and his supporters cite the Budget Control Act of 2010, which reinstates some of the spending targets from the 1985 Gramm-Rudman-Hollings Act. This is supposedly reducing various discretionary expenditures by $850 billion over the next ten years. Unfortunately, for the past 28 years, the spending targets of Gramm-Rudman-Hollings has been systematically ignored while the federal budget has tripled in size.

Obama supporters also assert that Congressional inaction and gridlock have resulted in Continuing Resolutions that leveled-off spending for a ten-year savings of $585 billion or $58.5 billion a year. This is creative bookkeeping at its best. Just one appropriation bill pushing for more than an inflationary increase in spending would erase these bogus budget savings.

Let’s take a moment to discuss inflation. Buried deep in the analytical tables of the Federal Budget is something called the “Current Services Analysis”. This is where zero-based budgets of the past went to die. “Current Services” is what budgeting should be, but never is. It is how much it would cost for the Federal Government to do exactly next year what it did the pervious year factoring in inflation escalators built into contracts and projects. This tracks to every person, project, program, office, vehicle, and building. The dirty little secret of Washington is that no one uses these numbers. The annual baseline offered by the Administration is well above “Current Services”. Both parties, while in the White House, play this game. Congress and interest groups then wail about budgets being cut when the Administration’s budget request is reduced even though these cuts never fully reduce the increase above “Current Services”. Thus spending ratchets higher no matter who is in charge.

This brings us to “Sequestration”. This $1.2 trillion over the next ten years poison pill of spending cuts was never designed to be real. Back in the summer of 2011, when raising the debt ceiling became a policy act instead of an administrative one, Congress and the Administration agreed to a “doomsday option” – the Sequester. The Sequester was designed to be so horrific that no one would ever want it to occur – thus forcing a real budget solution. Since everyone decided to avoid a real solution the Sequester looms large on the near horizon. Congress can always reverse itself and eliminate the Sequester with a “we were just kidding” floor vote. So trumpeting the Sequester as part of the $2.4 trillion over the next ten years reduction is also bending reality.

The other part of the victory dance is taking more money from Americans and giving it to the federal government. Believing that the federal government’s major problem is lack of our money is foundational to the Administration and Congressional Democrats. The recent tax increase generates $630 billion over the next ten years. In the past, any increase in federal receipts removed pressure to cut spending while increasing the urge to spend more.

The final assertion is that ripple effects of all these “savings” will reduce interest paid on the national debt $300 billion over the next ten years have as much to do with international money markets as they do on the total balance owed.

America braces for the next act in this most irresponsible fiscal fantasy.

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