Spending Cut Plans Don't Cut Spending

Investor's Business Daily

At the family table, cutting spending means spending less than the year before. But in Washington, it means slower growth in spending on programs or debt interest.Both the Senate Gang of Six proposal and the Cut, Cap and Balance plan from the conservative Republican Study Committee, which the House passed this week, rely on these types of cuts.In Washington-speak, a spending cut means a government program that is projected to grow, say, 5% next year will rise just 3%."If I told you I was starting a diet and a month later I told you I was successful because I only gained five pounds instead of 10 pounds, you'd probably call me a stupid jerk," said Dan Mitchell, a senior fellow at the libertarian Cato Institute. "But if I was a congressman you'd call me a frugal, fiscally responsible lawmaker."Under the Congressional Budget Office's "baseline scenario," spending will rise from $3.6 trillion in fiscal 2012 to $5.6 trillion in 2021. That's an average annual growth rate of 4.7%.According to an IBD analysis, Cut, Cap and Balance spends $5.8 trillion less over 10 years vs. the CBO baseline. But it never reduces actual spending year-to-year. Rather, outlays rise from $3.5 trillion in 2012 to $4.7 trillion in 2021. That's a 3% average annual rate.The Gang of Six senators have proposed cutting spending gains by just $2.7 trillion over 10 years. Details are scarce, but it means spending growth would be higher than Cut, Cap and Balance.Even though programs aren't receiving less money, some argue it will still impact beneficiaries."Baselines are usually constructed to maintain the same level of services," said Dean Baker, co-director of the liberal Center for Economic and Policy Research. "That's certainly going to mean increases in inflation. And it varies by program. If you have more school kids, you'll need to spend more on education."While he concedes a legitimate purpose for baselines, Mitchell responds, "You can play all types of games with baselines. ... You can assume that we'll have a permanent defense presence in Iraq and Afghanistan, even though we all know that our operations are eventually going to wind down."Adding to the confusion: Not all spending cuts affect government programs. When a deficit plan reduces program spending or hikes taxes, it curbs the rise in future government debt. That reduces future interest payments vs. the baseline assumption.Congress treats these lower payments as spend ing cuts. That is true, but, amid calls for "shared sacrifice," it exaggerates the impact on government programs."The Gang of Six package is supposed to be 74% spending cuts and 26% tax increases," Mitchell said. "But actual cuts to programs won't come anywhere close to that, even using phoney Washington math and counting interest savings as a spending cut."Cut, Cap and Balance's $5.8 trillion in spending cuts assumes a $248 billion drop in interest payments, says an RSC staff member.It's unclear how much the Gang of Six would cut debt payments, but the tax hikes mean interest should account for a larger share of spending cuts than RSC's plan.Baker doesn't see a big problem."Just don't make up a phony overall number," he said. "Call it interest or spending, it doesn't matter."

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