U.S. Markets closed

Government Spending Is Never Coming Down


As we count down to another fiscal deadline and another political showdown (over so-called sequestration or automatic budget cuts that are set to take effect March 1), it's hard not to feel cynical and apathetic about the whole process. As much as Republicans have adjusted their strategy and are now avoiding the debt-ceiling as a battle ground, few actually believe that across-the-board cuts will be allowed or that the government will shut down.

Clearly, deal-making is in the air and you can bet the ranch that there will be a last-minute fix — just like last time.

"I wouldn't be surprised if by March 27 we figure out one way of not having across-the-board cuts but more targeted cuts for this fiscal year, because they're much easier to do," says Ed Mills, a Washington policy analyst at FBR Capital Markets. By reaching some sort of hybrid solution to the automatic cuts — as well as addressing the resolution needed to keep the government funded for the next nine months — we could essentially take care of sequestration, funding and recession avoidance.

Best of all, it won't hurt a bit, since the majority of the $1.2 trillion in cuts on the table will surely be pushed back to the ''out years," lest anything be done to slow the economy or diminish the effect of the Federal Reserve's $85 billion monthly bond-buying campaign. However, there's not much confidence that those checks will be honored by the time 2021 rolls around.

"That's always a concern," Mills says, pointing out that expanding the Federal budget is a lot easier than cutting it since "every loophole has a lobbyist, and every program has a patron."

As a result, citizens are told to look at things like ''outlays as a percentage of GDP" — which is just a nice way of saying the government is the right size, it's the darn economy that's not big enough. We're also told "it's health care's fault," and if those costs weren't running amok we'd be fine. In addition, we're to believe that slowing the rate of growth is the same thing as a cut.

While there might be a smidgeon of truth in these explanations, the bottom line is that spending is never coming down. Deficits will go up and down with the economy and the level of taxation, but the sheer amount of ''Federal outlays" can barely even be slowed, let alone reduced.

As much as some politicians and organizations have made an industry out of highlighting government "waste, fraud and abuse," Mills says most of the fat has already been trimmed. While I still need to be convinced of this federal leanness, there is one thing that I am sure of: tax increases. Projected tax receipts just went up by a trillion dollars in the blink of an eye.