Crunching The Numbers
We did a public service mailing last Sunday when it looked like they had a debt deal in Congress. It was reported that the debt ceiling would be raised S2.8 trillion, and there would be $3 trillion in budget cuts as an offset. The numbers didn't work for us, something smelled funny. We were right.
As it worked out, under that proposal there would have been minor cuts in 2012 through 2015, and as of 2016 the budget would be growing again. By he end of the agreement, we would have added $1.995 trillion to our federal budget. Not such a great deal.
The increases occur because of a law enacted in 1974 that calls for "baseline budgeting". Baseline budgeting assumes the current budget item will be funded at $100% regardless as to how much money has actually been spent. Then it adds a percentage onto the budget to account for inflation and increased demand for that service / department / procurement. The percentage has historically worked out to about 7% annually. This was done to allow for projections of what revenues would be required to fund future government obligations. This is also the law that gave us the CBO.
That is the formulation which we used in our calculations for the deal on the table Sunday morning. 100% plus 7% and then minus one tenth of the budget cuts. We were being generous, because as it works out, in Sunday's plan, the most severe cuts would occur after 2016, when the next President would need to deal with them. However, by our calculations, by then there would be budget increases. We pointed that out in our mailing, and to our friends on Facebook.
Sunday's plan gave way to the plan voted on and signed into law on Monday and Tuesday of the week. Now we have a $2.4 trillion dollars raise in the debt ceiling, and $1 trillion in cuts over the next ten years. That's not much of a difference in the debt ceiling, but quite a difference in budget cuts. We thought it would be fun to crunch the numbers again. At least I thought it would be fun - research not so much.
We used the same calculations as we did on Sunday and just popped in the new numbers. We take the budget total, subtract out $100 billion per year ($1 trillion total at the end of 10 years) and then add 7% to come up with the following year's projection. Here are the budget total numbers, and numbers don't lie:
2012 (no cuts) $3.5 trillion
2013 $3.645 trillion
2014 $3.8 trillion
2015 $3.966 trillion
2016 $4.143 trillion
2017 $4.33 trillion
2018 $4.536 trillion
2019 $4.753 trillion
2020 $4.985 trillion
2021 $5.23 trillion
So, we are adding $1.73 trillion to the budget - sadly that doesn't seem like a big number anymore. But wait, there's more. on that first budget number, $3.5 trillion, we only generate $1.9 billion in taxes. We borrow $1.6 trillion. We borrow it mostly from the Federal Reserve, which charges us interest, and prints currency when it runs out, generating inflation. The rest comes from hitting up China (about $800 billion), Japan (about the same), and such world powers as India, Korea, and really, whoever offers it to us.
Let's say that the tax rates remain flat. Until the unemployment numbers improve and we bring more taxpayers into the fold, that is what will happen. What does this steady budget growth do to our national debt? Just in principal alone we are adding $23.891 trillion - and we're only making interest payments on the $14.3 trillion we owe now. That comes out to... uh, carry the 3... $38.191trillion. Feeling queasy yet?
So taxes will need to be raised. We hate to tell you this kiddies, but they've already thought of that. The CBO projections (which come up with much friendlier numbers than I have) ASSUME that the Bush tax rates will expire in 2013 - not on the rich. On Everyone. Bill Gates, me, you and the guy driving the forklift at Walmart. There's a surprise on every page of this budget deal.
None of this counts in the additional $2.4 trillion that the debt ceiling is being raised. Effectively we have doubled the national budget and brought the national debt north of $40 trillion. Now that's some serious spending cuts. It's all smoke and mirrors boys and girls. Nothing has changed, we just had a really exciting soap opera to watch for a couple of weeks. Boehner could have just dropped our drawers and asked us to bend over for all of the good his negotiating skills did for us.
It's not that there aren't plans out there that actually would do something constructive. Cut, Cap and Balance looks good. We've already endorsed Connie Mack's Penny Plan. It seems that the problem is what it always has been. Career politicians toting water for special interests, and spending all of their time figuring out how to keep their office.
As disclosure, I rounded off everything in dollars below hundreds of billions. Less than 5 rounded down, greater than 5 rounded up. The math isn't all that hard. You would think the geniuses in DC could have figured this out. Well, they did figure it out. You've been lied to America. Don't forget today come election day 2012. Next time maybe they will kiss us first.
RLB
Categories: Constitutional Issues, The Economy, political leadership, Partisan Politics
Tags: budget deficit national debt political leadership
I am so glad that you posted this as a real article - I so wanted to comment on the mailer. This whole process was nothing but a exercise in self-gratification to the Congress. They scared the hell out of everyone, and for no good reason - there is plenty of cash flow to keep from default and to keep the checks going. The first cut I would have made is to shut down the Congress and the Presidentcy. All of these swamp creatures need to be turned out of office - including anyone who voted for this abortion. It does absolutely nothing with regard to debt, deficit, spending cuts or balancing the budget. Boehner is an idiot.
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You're facts are usually solid, so I'm a little sick to my stomach. All of this drama for nothing. And no cuts. I'm starting to lose hope that we can ever fix this mess.
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There's another thing too. All of the projections past 2013 don't have to be honored. No Congress is bound by the acts of a previous Congress. The next Congress can just change the law and the agreement. That cuts both ways. If the GOP gets a bigger majority and the White House, they can repeal this whole mess. If the Dems gain more ground, they can just ignore all of this and spend further and raise taxes more. The next election either fixes this or dooms us.
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I don't even knowwhat to say. I don't have any illusions that there's 535 patriots in Washington doing the people's business with honor. I know most of them are just trying to preserve their cushy jobss. Still, bringing the country to the brink of economic diasater, and then lying about fixing it? What sort of slimeballs are these people? Time to challenge any incumbent who voted for this. Primary all of them - R or D. Time to clean house. Again.
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The thingthat makes me shake my head is West and Ryan signing on to this. I don't know much about West, but he's been a tea party favorite. That will change now. But Ryan - he HAD to know that this was a con job. I can't imagine he's on board with this regardless of his vote. Kissing upto power doesn't look goodon him.
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I remember reading a story about Boehner saying that if you didn't vote for the bill, you were disqualified from serving on the super-committee. Maybe it was some horse trading - a bote for a guaranteed seat. West and Ryan would be big assets sitting that committee.
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There were no cuts. The so-called cuts were savings from bringing troops home from Iraq and Afghanistan. More money will be spent than saved, why else would they have to raised the debt limit? If there were any real cuts we would never h...ave had to raise the debt limit. Now we are going to have higher interest payments to make which will cause us to have to borrow more money to make our interest payments... That is like you borrowing money to make your house payment because you cannot afford to make your house payment.
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Yes and this new comittie is not even constitutional, on top of that it requires 75 percent majority to even debate what they find, that meens look for our taxes to skyrocket ,thanks to the moderate reps.
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Gee, following in the same steps as FDR. Borrowing foreign money and throwing it to the wrong people. Put us further into debt with no recovery . I hope it doesn't end like the Great Depression.
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Here's another interesting aspect of all this. These jerks will receive full retirement at taxpayer expense and leave us to clean up their mess. I get the feeling a lot of these older members plan on retiring anyway. Those who don't plan ...on retirement are probably worried they're going to be defeated in 2012, so they are all grabbing their ill-gotten booty while they're still in office. There's nothing like having a license to steal and commit fraud. Is there?
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West is a great speaker but so was Obama on the campaign trail.
I am NOT impressed with the stances he takes.
He's for deep domestic spending cuts but doesn't want military spending touched.
That is NOT how I believe, I've had enough with super-ultra-militarization​. Who the hell are we fighting with all this spending? Our selves, our future generations?
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Sure there were far better plans and if we had control of the Senate and WH, it would have been a better outcome. I support the tea party but they want everything right now, right away, no waiting and under the circumstances I just said, it is not going to happen, period. This is a 10 to 15 year, 2 or 3 election process of getting control back and us on the right track. It has to at least begin to start somewhere and this is a start. We got no new tax increases and a "must" up or down vote on a balanced budget amendment. Do you think what we got at all would have even been dreamed of 3 years ago?? The numbers on this thing are not the greatest but like West said in his interview with Greta tonight, an aircraft carrier takes 5 miles to turn itself around, it dosent pivot on a dime!
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Since the housing market and employment numbers have actually gotten worse during this period of extend-and-pretend, it should be clear that raising the debt ceiling isn't even a potential fix for the problem.
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Hate to tell you, but it's only $900 billion dollars in cuts over 10 years. So there's even less cutting and more deficit spending.
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Personally I think they knew the downgrade was already coming. They just wanted that last maxed out amount. Now they can use this to further attack the Tea Party in hopes of further swaying the Independents by painting us as the extremists. BTW great stuff today on our show. Thanks again
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I don't know why anyone would believe Obama, or anyone from his administration. They have been wrong on everything, so far. Should have been a sign, when the weekend earlier, the experts claimed the market would tank. If there was no agreement, and it was fine. It tanked after the deal was made. Which they probably knew was going to happen. They just wanted a scapegoat.
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They claimed Obamacare would lower costs. It raised them. The stimulus would keep unemployment below 8%. It's 9.3%. They said we needed to raise the debt ceiling to avoid a stock market plunge, credit downgrade, and default. 2of the 3 happened anyway, and we get to do this again in December. They said there were budget cuts. There aren't. I'm sensing a pattern...
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