Last week did not offer much good news for America’s fiscal or economic futures. On Friday, the White House announced its expectation that the Fiscal Year 2012 deficit will be $1.2 trillion, the fourth fiscal year in a row with a deficit of at least one trillion dollars. Also on Friday, it was announced that the second quarter’s preliminary Gross Domestic Product growth was a tiny 1.5 percent. Meanwhile, House Republicans and Senate Democrats played chicken on the Bush tax policies. This all comes shortly after Senate Majority Leader Harry Reid’s (D-NV) unlawful decision to not pass a federal budget for the fourth fiscal year in a row.
But in times of trouble, one can always count on Congress to pretend it’s doing something to fix the problem. Erika blogged about this yesterday, but on Thursday Politico reported that the House and Senate leaderships are planning on introducing a bipartisan bill that would avoid the spending part of the so-called “fiscal cliff” that will arrive on January 1, 2013. The solution? To put forth a six-month budget bill that keeps spending at levels dictated by last year’s debt ceiling deal, AKA the Budget Control Act (BCA). This deal, which “cut” $2.1 trillion from federal spending over the next ten years, never actually attempts to diminish spending, however – it merely will slow the growth of spending.
In Washington, this is a big deal, and many pundits will spend months talking about how harmful, good, or otherwise large the BCA’s spending reductions are. As we hit two months from the end of the 2012 fiscal year, some perspective:
1. The BCA will “cut” a whole 4.77% from the Congressional Budget Office’s (CBO) 2012 baseline budget estimate over the next ten years. Compared to the Census-estimated median American income in 2010 of $49,445, this is a “cut” of $2,358.52 when overspending annually by over $16,000.
2. The federal budget has gone up by nearly 60% between the actual 2000 and the estimated 2013 budgets and, according to CBO, is expected to grow by another nearly 55% over the next decade. Which means the rise in spending will be over 11 times as much as the “cuts.”
3. The Congressional Budget Office’s estimate for economic growth in 2011 was optimistic by about one percent of GDP, and the President’s estimates were off by even more. If this is true for the next ten years, using the CBO’s estimates, revenues for the next ten years will be down by nearly 2.172 trillion over that time, or 5.3%. In other words, for Americans looking at their own incomes, this is the same as earning $2,620.59 less per year.
Related, if the CBO is wrong by one percent over the next ten years, this loss of revenue will mean the BCA’s “cuts” actually reduce zero dollars over ten years, as its spending reductions are about the same as this loss of tax revenue.
The Budget Control Act is a fiscal joke, yet it could cause a great deal of harm to worthwhile federal programs. It should be eliminated and real reforms in spending and taxes instituted quickly and aggressively. Perhaps yesterday’s victory by Ted Cruz in Texas is another sign that the people of this country are ready for the tough decisions ahead.