By my estimation, the debt ceiling deal being formalized now will result in the following paltry and delayed cuts:
-zero in FY 2011
-zero in FY 2012
-some $21 billion in 2013
-some $42 billion in 2014
-indefinite cuts (unlikely to emerge) after 2015 continuing to 2021
The details are complex but it appears the Congress is going to pass some sort of a drug deal tonight whereby no immediate cuts take place. Starting in 2013 there are to be small, across the board reductions for two years and then after that steeper, more profound cuts. Additionally, a TBA commission will be established to find an additional $500 billion in cuts. The goal is to ultimately reduce some $2 trillion of the federal government's excessive debt.
Here are the problems.
First of all, with no immediate spending cuts, every elected member of the federal government is safe from making difficult decisions until after next year's elections. This means the pain from cuts will be on whomever is in office in 2013, which will give them plausible deniability to not implement spending increases.
What about reductions after that?
There is no way Congress four years from now is going to adhere to this timeline. If two years from now members will be thinking about revising the plan, four years from now a substantial number of them will be out of office and lobbying to change the schedule. Additionally, these projections presume economic growth of around 4% per year. We are averaging less than 1% right now, and recent numbers are not encouraging.
And the $500 billion to be cut by the mysterious commission? Completely illusory. How successful was the Bowles-Simpson Commission? Or Obama's recent Campaign to Cut Government Waste? Rumor has it tonight's deal will require $500 billion in cuts to be found, or else they will come from the defense budget. If that is the case then this is certainly a step in the right direction, although I would prefer to see that number about five times larger. But I suspect there will be an out for this yet to be established Commission.
What is most disturbing though as that these cuts are already planned increases in the federal budget. What we need is an immediate cut in total expenditures today, not delayed and decreased increases.
As the always brilliant Peter Schiff put it this morning, what the USG is right now is a morbidly obese person who says they are going to keep eating for two years and then slightly cut back their caloric intake.
It just will not work.
I actually think though we will force through those first two years of cuts. The Tea Party will be around long enough to keep Congress honest so I think $63 billion will come to fruition. The $500 billion (if it is indeed in the bill) will never happen. I am confident of that but we will have to wait and see what happens.
Assuming we get $63 billion then, what does that really mean? Well, it adds up to about the cost of ten aircraft carriers. Or four London Olympic games. Or about one-half the cost of Hurricane Katrina. Now none of those measures are insignificant, but given the fact that the USG's deficit this year is over $1 trillion, it is not nearly enough.
Of course, the fact that we have made any cuts, given the tone of the conversation just nine months ago, is progress.
Sensible libertarian views on nearly everything- except foreign affairs.