Free Markets, Free People

cuts


The $32.5 billion in cuts are real cuts

They’re not all smoke and mirrors as some are alleging.  But you have to understand the budget process to know that.  Quin Hillyar explains:

Anyway, yes, the cuts are not of the high quality of cuts we might like. Yes, there are a few which can only be characterized as smoke and mirrors. But no, the bulk of these cuts are not meaningless; most of them actually will keep money from being spent that otherwise would, yes, be spent. In other words, most of the complaints are groundless.

Here’s why. This is an Appropriations bill. Approps bills are primarily expressed through "budget authority," not through "outlays." A project in an Approps bill that receives budget authority in FY 2011 might not actually get spent — there may not be an "outlay" of the full amount — in 2011. If it is a construction project, that will almost certainly be the case. This late in the fiscal year — which began last October 1, and thus is more than halfway over — some of these projects may not even get the contracts signed before the end of the fiscal year. So cutting that project would not cut a single dollar from actual spending this year. But that does NOT — NOT NOT NOT NOT NOT — mean that cutting the project is a waste of time. If the budget authority is removed, it means that the money that absolutely would have been spent in future years now CANNOT be spent, by law. It saves real money.

Hillyar worked on the staff of the House Appropriations Committee during the time Republicans balanced the budget and brought Bubba to the table to sign kicking and screaming all the way (you remember Clinton’s "can’t be done" statement, right?).

More clarity about the process:

The savings are real. It’s the same thing with a lot of the items that critics are calling "smoke and mirrors" just because they don’t cut this year’s outlays. The criticism is utterly ill-informed and baseless.

Granted, there also are accounts that contain leftover money that supposedly wasn’t going to be spent anyway — so in this case, say the critics, cutting the budget authority doesn’t save money; it’s just forcing the official accounting to catch up with the reality of the unspent funds….. Well, yes and no. Or rather, maybe. The dirty little secret about unobligated funds is that many of them are in accounts that aren’t impressively tight. Executive branch bureaucracies, without approval of Congress, often can tap into those funds (in effect) for other purposes, merely by shifting them among accounts. Most funds are fungible. That’s why Sen. Tom Coburn is making such a big deal, overall (apart from this battle), about cutting hundreds of billions in unobligated funds: because as long as they remain on the books, they still can get spent, and in most cases will get spent. Therefore, eliminating the budget authority for these programs does indeed save real money. It’s not just an accounting trick. It takes away all legal authority to spend that money. It means the taxpayers will not be on the hook for the money.

So while maybe not ideal in terms of the amount of “high quality” cuts we would have preferred, believing the narrative that they’re all smoke and mirrors is just wrong.  When a program has budget authority, it is funded and those funds will be spent – by someone.  That authority has now been withdrawn and thus the ability to spend even a penny of the formerly allocated funds goes with it.

An even better silver lining (again something you have to understand about the process to appreciate the impact):

Also important is that they force the overall spending baseline lower. So much of what happens in Washington budgets involves comparing spending year to year. If you take away budget authority EVEN FOR PROGRAMS THAT NEVER WOULD GET SPENT, you also make the official baseline for future years lower. It thus becomes far harder for the left to demagogue GOP spending proposals, because the proposals will be compared to a lower starting point than they would if the programs in question still remained on the official books. Anybody who doesn’t think this is an important budgetary victory is either ignorant or a fool.

Or both.

All of these things are important.  Removing the budget authority essentially defunds a program, or, as mentioned, stops it in its tracks and removes the money from being available to the program being defunded.   It also removes it from the grasping, greedy fingers of bureaucrats ready and eager to take whatever money they can get their hands on and spend it.

Best of all worlds?  Probably not.  But certainly not at all the worst of all worlds.  Anytime we can save money and force the spending baseline lower seems to me to be a victory.

~McQ


It is budget day in Washington DC

Today is the day President Obama’s budget is published.  It promises “cuts” and “savings”.  Before we venture too far in our analysis of the budget, let’s be clear on what those two words usually mean in Washington.  A “cut” in spending usually means that whoever is saying it is talking about not spending as much as originally planned.  And neither have a thing to do with debt reduction.   What they actually mean is they’re still going to spend buckets of money we don’t have – they’re just not going to spend “buckets and buckets” of it.

“Savings” is normally used in about the same way.  I call it wife math (my apologies to the ladies, but come on, admit it, you’ve used it).  Wife math announces, “I saw this scarf on sale for $75.  It is normally $100.  I "saved" $25.”   Of course what she really did was spend $75 that perhaps the family didn’t have or couldn’t afford.

So when you see or hear the words “cuts” and “savings” in discussions of the budget this year, please understand the context of the words when used in those discussions.  “Cuts” mean they don’t plan spending as much as they originally planned to spend.  In the case “cut”, not a single dollar has yet been spent, but they’re going to try to convince you that those “cuts” translate into “savings”.  For most of us “savings” means we have spent less money on necessities (by being frugal)  and the money we’ve saved (i.e. actual money in hand – not borrowed, but earned) can be applied to paying down something else– such as credit card debt or something.  Yeah, it’s real money we have in hand, not spending we “cut” from something we didn’t have the money for to begin with.

Not so with double talking Washington – “savings” in their jargon means not spending as much.  It is slightly different than “cut” in that “savings” are usually “realized” from a proposed program of spending while “cuts” usually come from an existing program of spending.   In the case of “savings” what is “saved” can’t be applied anywhere because we’re in a cycle of deficit spending.  It isn’t revenue they’re talking about that they can spend elsewhere to reduce the debt, it is borrowed money of which they don’t plan on borrowing as much.

This year alone we’re looking at a record deficit of 1.6 trillion dollars.  What they’re talking about “saving” over the next 10 years (1.1 trillion – or 110 billion a year – chicken feed in 3.x trillion dollar budgets) is simply proposed reductions on what they had planned to borrow.  Meanwhile the debt continues to climb.

Keep in mind that we’re looking a 4 years worth of budgets from the administration with over a trillion dollars in deficit spending.  What they’re trying to do is soften that with is 1.1 trillion in “cuts” and “savings” over 10 years that will help “reduce the deficit”.  I’m sure you’re able to do the math and realize total debt keeps climbing.  But also remember that “cuts” and “savings” are what are going to be trumpeted, not the truth:

An administration official, who spoke on condition of anonymity before the budget was released, said one-third of the $1.1 trillion in deficit reduction the administration is projecting over the next decade would come from additional revenue with the bulk of that reflecting the limitations on tax deductions by the wealthy.

So not only are they “cutting” money they don’t have or haven’t spent, they’re “saving” money that will trim the deficit (while the debt still goes up) by assuming revenue not in hand.

The point?  Well, when you see things like this from AP Economics Writer Martin Crutsinger …

“Two-thirds of [the budget's] savings [of $1.1 trillion over 10 years] would come from spending reductions including $400 billion in savings from a five year freeze on spending in many domestic government agencies. The other one-third of savings would come from tax increases. The biggest tax hike would come from a proposal to trim the deductions the wealthiest Americans can claim for charitable contributions, mortgage interest and state and local tax payments. The administration proposed this tax hike last year but it never advanced because of widespread congressional opposition."

… You’ll now know how to translate it. 

I mean where else would you find a line like “the other one-third of savings would come from tax increases” than in a Washington DC budget discussion?

Confused?

Well join the club … and it will get worse.

~McQ

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