NEW YORK (TheStreet) -- Something very strange is happening: In a round-the-clock news cycleabout the U.S. federal budget, there is no mentioning of the actualgovernment spending numbers involved. I watch CNBC almost every hour of the day, and even the premier financial TV channel has managed toavoid the real numbers like the plague.
The way we talk about tax and spend numbers are a little differentfrom each other. On the tax side, we are dealing with percentages.Individuals can change their behavior if a tax is increased or decreased. So we can increase from 15% to 20%, or cut from 35% to25%, but we don't know what this means for the total amount oftax collected. We don't know how raising and cutting tax rates impact behavior.
For example, if a tax rate is increased, tax revenue may or may not goup depending on how many people will now choose to retire, moveabroad, engage in more tax planning, or shift their income to someother field or into the future.
Spending, on the other hand, is measured in absolute dollars -- notpercentages. It's therefore a lot easier to budget. Last year, thefederal government spent $3.8 trillion -- not a percentage ofanything. It's an absolute dollar amount. We can control it; we setit.
But apparently, not talk about it.
So let's talk about it, for a change!
The "Fiscal Cliff" negotiation, soon to be followed by the surely eventrickier debt limit negotiation, is filled with talk about spendingcuts. So what are these spending cuts?
I'm sure you have all heard the "spending cut" numbers: $1 trillion,$2 trillion, $3 trillion, $4 trillion... wait, did I just say $4trillion? Wasn't ALL Federal government spending last year $3.8trillion?
Lesson No. 1: These spending cut numbers are always talked about in 10-year terms. It's like giving 10 binding New Year's resolutions inone fell swoop. "I will lose 20 pounds per year for 10 years." But youonly weigh 190 pounds, and that's 200 pounds over 10 years? You will weighless than zero? Huh?
That brings us to the second point. Let's take a $4 trillion spendingcut, over 10 years. That's $400 billion per year. Does that meanthat spending now will be $3.8 trillion minus $400 billion, i.e., $3.4trillion, per year, for the next 10 years?
The U.S. government talks about spending cuts measured against someimaginary number that it
have spent, in its fantasy land. Forexample, the U.S. government
have spent $5 trillion -- bystarting a war with planet Mars or Luxembourg, say -- but luckilyCongress and the president agreed to hold off on this expensiveenterprise. They estimate this war would have cost $400 billion peryear. So now we will only spend $4.6 trillion per year.
Since we spent $3.8 trillion last year, a normal person would call this an $800 billion spending increase -- from $3.8 trillion per year to $4.6 trillion. Only in Washington, D.C. is this referred to as a $4 trillion spending
-- $400 billion per year over 10 years.
The "Balanced" Approach
We hear a lot about needing to take a "balanced" approach to balancingthe federal budget. So what does that mean? Looking at the historyof past and projected federal taxes and spending, available at
,. . . we see that taxes are now $2.5 trillion per year, for an annualdeficit of $1.3 trillion per year.
Let's say that it were sufficient to make everyone happy to cut thedeficit to approximately the level at which it was in 2002 and 2007 --$100 billion and change, per year. We would need to shrink thedeficit by $1.2 trillion. We hear a lot about "$3 in spending cuts forevery $1 in tax hikes."
So let's apply that 3:1 ratio of spending cuts to tax hikes. Thatwould mean $300 billion in tax hikes and $900 billion in spendingcuts, per year. Taxes would hit $2.8 trillion, and spending $2.9trillion.
$2.9 trillion in annual federal spending? That's what the number was in 2008.
Let's say that we wanted to achieve 100% budget balance by simplycutting spending -- no tax hikes at all. That would mean thatspending would have to be rolled back to the 2005 level of $2.5trillion.
2008 or 2005? Was government spending too low in any of those years?You might recall that those were close to the peakyears for the Iraq and Afghanistan war spending. Half of that moneyis now off the budget, so we should be able to cut spending another$100 billion or more from those numbers without problem.
The problem now is something entirely different: Whether it is theRepublican proposal or the administration's proposal, the spendingnumbers for the next 10 years are way above this kind of $2.5 trillionto $2.9 trillion per year level. The Republicans propose $4.6trillion per year on average for those 10 years, and the Democratspropose $4.8 trillion per year on average.
In the years 2002-2011, the federal government spent a cumulative $28trillion. An increase even to the stingiest Republican proposal of$46 trillion over the following 10 years would mean a 65% spendingincrease. The president wants to spend even more than that.
What does all of this mean? All of this "spending cut" talk isabsolute nonsense. There are no spending cuts proposed, even by theRepublicans. In a best-case scenario, even if the Republicans get100% of what they want, would mean federal spending over the next10 years would be 65% higher than the previous 10 years.
It's all a lie. A 65% (or greater) spending increase, not a cut.It's not anywhere near a cut. It's an epic spending increase ofOlympian proportions.
Someone will surely emerge from the Church of Keynesianism and explain to us that government spending is really good for us and the economy.But please don't tell us that what is being proposed in Washington, D.C.is anything but a gigantic spending increase. It doesn't pass the "basic facts" test.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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