Where Are the Spending Cuts?

Considering the Democrats control the Senate and the White House, I actually think the Republican leadership did a decent job in the debt negotiations. Of course, I had low expectations, but did anybody expect miracles with Obama in the White House?

As you might expect, this means the agreement is – at best – a tiny step on a long journey.

I’ve already looked at the revenue part of the deal, so let’s turn our attention to the spending side of the fiscal ledger. Specifically, the supposed spending cuts for the “discretionary” part of the budget.*

This chart shows you everything you need to understand about the budget deal. The top line (fuchsia, I’m told) is the “discretionary baseline,” which is an estimate of how fast spending would increase to keep pace with factors such as inflation. The next line shows how fast discretionary spending will grow under the budget agreement.

The good news is that discretionary spending does not grow as fast with the budget agreement. The bad news is that it still grows. In other words, the supposed “budget cuts” are based on Washington math, where a spending increase is called a spending cut simply because outlays didn’t rise even faster.

But the really bad news is that the burden of discretionary spending – over the entire 10-year period – will be more than twice as large as it was in 2000. In other words, the budget deal basically leaves unchallenged the entire Bush-Obama spending binge.

But, as the old saying goes, a journey of 14.3 trillion miles begins with a first step.

*By way of background, the federal budget has three types of spending. Entitlements, which are “permanently appropriated” and increase automatically. Net interest, which is the one part of the budget that truly is uncontrollable. And discretionary, which are the parts of the budget funded by annual appropriations bills.

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Deconstructing the Revenue Side of the Debt-Ceiling Deal: Yes, There’s a Real Threat of Higher Taxes

Politicians last night announced the framework of a deal to increase the debt limit. In addition to authorizing about $900 billion more red ink right away, it would require immediate budget cuts of more than $900 billion, though “immediate” means over 10 years and “budget cuts” means spending still goes up (but not as fast as previously planned).

But that’s the relatively uncontroversial part. The fighting we’re seeing today revolves around a “super-committee” that’s been created to find $1.5 trillion of additional “deficit reduction” over the next 10 years (based on Washington math, of course).

And much of the squabbling is about whether the super-committee is a vehicle for higher taxes. As with all kiss-your-sister budget deals, both sides can point to something they like.

Here’s what Republicans like:

The super-committee must use the “current law” baseline, which assumes that the 2001 and 2003 tax cuts expire at the end of 2012. But why are GOPers happy about this, considering they want those tax cuts extended? For the simple reason that Democrats on the super-committee therefore can’t use repeal of the “Bush tax cuts for the rich” as a revenue raiser.

Here’s what Democrats like:

There appears to be nothing in the agreement to preclude the super-committee from meeting its $1.5 trillion target with tax revenue. The 2001 and 2003 tax legislation is not an option, but everything else is on the table (notwithstanding GOP claims that it is “impossible for Joint Committee to increase taxes”).

In other words, there is a risk of tax hikes, just as I warned last week. Indeed, the five-step scenario I outlined last week needs to be modified because now a tax-hike deal would be “vital” to not only “protect” the nation from alleged default, but also to forestall the “brutal” sequester that might take place in the absence of an agreement.

But you don’t have to believe me. Just read the fact sheet distributed by the White House, which is filled with class warfare rhetoric about “shared sacrifice.”

This doesn’t mean there will be tax increases, of course, and this doesn’t mean Boehner and McConnell gave up more than Obama, Reid, and Pelosi.

But as someone who assumes politicians will do the wrong thing whenever possible, it’s always good to identify the worst-case scenario and then prepare to explain why it’s not a good idea.

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Welcome Instapundit readers. Thanks, Glenn.

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