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July 18 Issue
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Kudlow’s Money Politic$
Larry Kudlow's daily web log of matters political and financial.
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Why the Budgetary Game Is a Big Taxpayer Scam
Here’s some friendly fiscal advice: Any time some Washington big shot like Ben Bernanke or Tim Geithner claims that immediate spending cuts in the debt deal will harm the economy — ignore them. Completely. You know why? Because in this great country of ours, spending never goes down. Never.
Take a look at the following chart:
The blue line you see is President Obama’s budget. The green line is Rep. Paul Ryan’s budget.
Now, Ryan’s is of course a couple of trillion dollars lower than Obama’s over the next ten years. But what do they both have in common? They both go up. As in spending more, not less. As in, roughly $40 trillion to $45 trillion more. That’s a whole lot of taxpayer money, folks.
Now why is this? It’s because of something called the “current services baseline,” which includes population and inflation increases built into the budget. Entitlements have their own formulas.
So when you hear a politician tell you they’re cutting spending, they’re actually referring only to reducing the growth of spending. Rarely, if ever, do they actually reduce the level of spending.
Think of it this way: You’re out car shopping and thinking about buying a $100,000 Mercedes. That’s your target. But then you decide to forego the Mercedes and opt for a $20,000 Chevy instead. Well, guess what? Congress would score that as an $80,000 budget cut. Huh? We all know that it’s actually a $20,000 budget increase.
Let’s be honest here. This budgetary game remains one big taxpayer scam. Look, I used to work in the federal budget office. I know the game.
Here’s yet another scam: Big budget deals say they “cut” (there’s that word again) a couple of trillion dollars over ten years. But most of it is targeted for the last couple of years, as in years eight, nine, and ten. So basically it’ll never happen. It’s four or five Congresses from now. Laws change. Deals are broken.
At the end of the day, the only thing that really matters is next year’s budget. Will it be cut? Ever in my lifetime? Because if it were cut, it would bring that line in that chart above down. Now that would be a called a decline. All of that other stuff? Increases.
When businesses cut expenses, the spending line declines. But when government cuts spending, the spending line always rises. Think of it.
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chrisboltssr
07/07/11 09:14
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Which is why I always wondered why conservatives and libertarians supported Paul Ryan's budget. Slower growth in spending is better than reduced spending? Only in a world where government is God.
WalkingHorse
07/07/11 08:59
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Precisely, Mr. Kudlow. You have put your finger on why a lot of we plebeians actively distrust politicians of all stripes. The political class is completely invested in never-ending growth of government. It has adopted the position that the wealth of the people is *theirs* and the fact that we retain some of what we earn is a conditional boon for which we are to be grateful.
When politicians come forth speaking of "shared sacrifice", they never, ever include government in that agreement, much less their favored interest groups.
Nobody who speaks of government reform should be considered plausibly sincere unless the following is true of his proposals:
* eliminate the sham baseline budgeting that contains built-in growth escalators. * subject the Federal government to the same accounting standards that demanded of public corporations * speaks honestly about the fact that mass entitlement programs are not a proper function of government, nor are they affordable over the long haul * contains the outright elimination of multiple cabinet level departments, with their functions turned over to the States or eliminated from government altogether. [Energy, Transportation, Commerce, Department of Mal-Education, ...] * a return to sound money and the elimination of the Statist fantasy that the government can do anything positive about employment save getting out of the way of the private sector. [My preference would be to eliminate the Federal Reserve outright.]
Anonymous123
07/07/11 08:41
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Keep telling everyone that awful truth. No one else is calling out the politicians on that. Our republic must have that information broadcast loud and clear to survive. Otherwise the "debate" drowns in talking points.
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