The media have eagerly trumpeted all this whining with a remarkable lack of context. Here’s an example: The White House released a report on the expected damage from sequestration in late February. The report was carefully broken down by state. The report for Texas, a state that happens to contain my five grandchildren, warned that 280 fewer schools would receive funding and 172,000 fewer students would be served. Not mentioned: Texas has 8,317 public schools and 4,329,841 students.
Don’t get me wrong: Reductions always hurt someone. The change, however, is a small part of total spending. It is not a seismic event. That reality was entirely lost as the long lists of possible cuts filled media time and space.
What we are looking at here is similar to what the majority of American households had to cope with starting Jan. 1. Sequestration not withstanding, the Congressional Budget Office expects federal spending to increase in every year out to 2024. It may be a small increase. It may be less than inflation. But it is well short of a freeze.
Actual working people, on the other hand, have experienced actual losses. With the restoration of the full employment tax, the 94 percent of all workers who earn less than the $113,700 Social Security wage base maximum have seen their paychecks cut by 2 percent. Only a raise in pay will restore their spending power.
We can get a still broader context by going back to a happier time, like 2007. Back then our government collected $1,933 billion in revenue and spent $2,275 billion, for a deficit of $342 billion. These figures are for the “on budget,” the one that contains most of the funding for government but excludes Social Security. The on budget is where the cuts will take place.
If we use the handy CPI inflation calculator provided by the Bureau of Labor Statistics to adjust this spending figure, we learn that on-budget spending would now be $2,527 billion if government spending had just kept pace with inflation since 2007. But it didn’t.
Instead, spending is projected to be $3,122 billion for 2013. That’s a whopping $595 billion greater, for a single year, than what would have been spent if government spending had risen only with inflation. Some of that over-inflation spending, of course, was necessitated by the economic collapse of 2008-09: bank bailouts, extended unemployment benefits, a surge in food stamp spending, etc. We can argue about the bank bailouts, but millions of people were saved from a lot of grief by some of that spending.
But that spending was temporary. We would not be unreasonable to expect that non-military government spending has plenty of room to recede, just as military spending has a lot of room for moderating as we withdraw from two major conflicts.
It also helps to measure spending cuts against revenue shortfalls. This year our government expects total on-budget receipts of $2,090 billion and total on-budget spending of $3,122 billion, for a deficit of $1,032 billion. It is, in other words, spending about 50 percent more than it takes in. That would be like you or me having income of $100,000 but spending $150,000 and increasing our borrowing by $50,000 a year. If we did that, cutting back our spending by a few percent would look entirely reasonable. It would not be a matter of public horror. Not a soul would feel sorry for us. We’d just be taking entirely inadequate steps toward avoiding bankruptcy.
Finally, there is the matter of reality. When real people talk about cutting their spending, they are talking about actual cuts in dollars spent. Washington doesn’t work that way. While spending is supposed to be cut by $1,200 billion over 10 years in the sequester, $216 billion of it is in supposed interest savings from the cuts. That leaves actual program cuts of less than $1 trillion over the entire 10-year period. In other words, we’re hearing all this noise about cutting less than $1 trillion over 10 years while Washington is overspending that amount every year.
It’s time for both parties to get real.
SCOTT BURNS is a principal of the Plano-based investment firm AssetBuilder Inc. His website is www.scottburns.com .
ON THE WEB
• Scott Burns, “Would You Lend Money to This Family?” (Aug. 5, 2011): http://assetbuilder.com/blogs/scott_burns/archive/2011/08/05/would-you-lend-money-to-this-family.aspx
• Congressional Budget Office: Budget Outlook: http://cbo.gov/sites/default/files/cbofiles/attachments/43907-BudgetOutlook.pdf
• Bureau of Labor Statistics inflation calculator: http://bls.gov/data/inflation_calculator.htm
• White House fact sheet on sequester for Texas: http://whitehouse.gov/sites/default/files/docs/sequester-factsheets/Texas.pdf
• Economic Indicators, February 2013: Federal Receipts, Outlays and Debt: http://gpo.gov/fdsys/pkg/ECONI-2013-02/pdf/ECONI-2013-02-Pg32.pdf