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The Fairy Tale on Spending Cuts

February 22, 2013 in Economics

By Michael D. Tanner

Michael D. Tanner

“The sequester is coming, the sequester is coming,” cries Chicken Little, speaking of the across-the-board spending reductions set to kick in next Friday. As a result, much of the Washington establishment, politicians of both parties, and the media are bracing for the apocalypse.

Henny Penny worries about poisoned meat going uninspected, the air traffic control system shutting down, and schools being forced to close. Meanwhile Turkey Lurkey is afraid that national security is threatened because our military will be gutted. And Foxy Loxy is concerned there will be massive job losses and our economy will crash.

Some think the sequester imposes savage spending cuts, but that’s not true.”

The reality, though, is that most of what we are being told about the sequester is just a fairy tale. Here’s why:

The sequester imposes savage spending cuts

Actually, the sequester doesn’t cut federal spending at all, or rather it cuts it only in the Washington sense of any reduction from projected baseline increases is a cut. In reality, even if the sequester goes through, the federal government will spend more every single year. In fact, in 2023 it will be spending $2.39 trillion more than it does today.

OK, but at least the reductions in projected spending are big, right?

Hardly. This year, the sequester would slow the growth in federal spending by just $85 billion, from an expected, pre-sequester budget of $3.64 trillion — less than a 2.3% reduction. To put that in perspective, the federal government borrows $85 billion every 28 days . In fact, this actually overstates the size of this year’s cuts. Because of ongoing contracts and the Byzantine labyrinth of federal budgeting, only $44 billion of that $85 billion will actually be cut from this year’s budget. The rest will be cut in future years, but attributed to this year’s budget. So, the real reduction in federal spending this year is just 1.2%. If the federal government can’t reduce spending by less than a penny-and-a-half on the dollar without throwing us into the dark ages, something is truly wrong.

But aren’t the cuts larger for domestic discretionary spending?

It is true that the cuts are not spread equally across all types of federal spending. Entitlement programs, such as Medicare, Medicaid and Social Security are generally exempt — Grandma’s Social Security check won’t be cut — meaning that discretionary spending takes a disproportionately larger hit. Still, we are talking about a reduction …read more
Source: OP-EDS

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