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Friday, February 15, 2013

Trick Question

OK, so you are a well-informed person who watches the nightly news and reads newspapers and obtains news from the Internet.  So, here's my trick question for you:  "How much will the Sequester cut from the federal budget?"

The gray lady, i.e. the New York Times, wrote on February 2, 2013, "Unless lawmakers act by March 1, the budget sequestration process will start cutting government spending automatically — reductions that would amount to $1.2 trillion by 2021. "

Now, the NYT is considered a pretty authoritative paper, so I read this to mean that there will be cuts in spending to both social welfare programs and to the Department of Defense.  Is that how you would understand it?

If a big company cuts its annual expenditures for marketing and sales by $500,000, that means that they will be spending $500,000 less on TV ads, radio ads, newspaper ads, etc., right?  Let's say that you have run up your credit card bills, so you are going to cut back on spending by $200 per month.  What does that mean?  It means you are going to spend $200 less each month.  Seems simple enough to me.

And, if the federal government is going to cut income taxes across the board by 10%, it means you get to keep 10% of your money that the government would otherwise be taking.  A cut is a cut is a cut.

But in Willy Wonka land, a cut is not a cut.

There has been much moaning and wringing of hands in government over the huge cuts that will be imposed on the government if the Sequester is allowed to go into effect.  We are told of huge cuts in the military budget, massive slashes in welfare spending, but the Sequester does not cut or reduce government spending in any way.

The reality is that the so called Sequester merely reduces the rate of increase in spending for the government, including the military.  Let me say it again, the Sequester includes no actual cuts in spending.  This is how Republican Senator Paul put it in his response to the President's State of the Union message broadcast by the Tea Party Express…

"The President does a big "woe is me" over the $1.2 trillion sequester that he endorsed and signed into law.  Some Republicans are joining him.  Few people understand that the Sequester doesn't even cut any spending. It just slows the rate of growth.  Even with the Sequester, government will grow over $7 trillion over the next decade."

In other words, even with the Sequester in place, government spending will automatically grow $7 trillion over the next ten years!

Another question I might ask is…"Are our Congressmen idiots, or do they simply think we are idiots?"

There is not lack of intelligence in Washington, DC, but there is certainly a lack of common sense.  What's wrong with these people—Republicans and Democrats?  Don't they understand the difference between slowing the rate of growth and making actual cuts in spending?

Have you ever heard of the "Penny Plan?"  This proposed piece of legislation calls for a 1% reduction in actual spending by the government.  The details are found at and they are worth reading.  Essentially, it calls for the government budget (excluding payments for interest on the national debt) to be reduced by 1 cent for every dollar spent.

I'm in business, so I know it is possible to make big cuts in your budget when the circumstances dictate it.  One year we cut our budget by nearly 10%, because we were operating in the red.  It saved us from going out of business.  That's what businesses do, small and large, when they are threatened with financial insolvency.  Boeing did it a few years ago.  It helped to save Boeing and made it possible for them to be much more successful in the years to come.

Families do the same thing.  If you are spending more than you are taking in, you cut expenditures, if you do not have the option of increasing revenues.  And, generally speaking, cuts are a lot more than 1%.  If a family is taking in $5,000 a month after taxes, a 1% cut would be only $50 per month.  Any family could do this if it had to, and usually, the cuts are closer to 10% than they are to 1%.

It's just commonsense, but I guess that's why the members of Congress, or at least most of them, just do not get it.

Let's face it, government is always a lot more bureaucratic and inefficient than a private business.  There's lots of fat and lard that can be easily cut.  The productivity of government workers is just a small fraction of that of workers in the free market.  The federal government could easily sustain a 10% across-the-board cut in expenditures, even at DOD.  Believe me, anyone who has served in the military (as I have) can tell you that DOD is just as bureaucratic and inefficient and full of waste as any other branch of government.  That's what I'd like to see, but if we can't do that, we can certainly cut spending (real cuts, not a reduction in the increase in spending) by 1% across-the-board.

Here is the Penny Plan as it is described at their web site…

The One Cent Solution is beautifully simple: If the government cuts one cent out of every dollar of its total spending (excluding interest payments) each year for five years, and then caps overall federal spending at 18 percent of national income from then on, we can:

  • Reduce federal spending by $7.5 trillion over 10 years.
  • Balance the budget by 2019.

Moreover, instead of using inflated budget "baselines" to claim nonexistent spending "cuts" a common practice in Washington, the One Cent Solution calls for real cuts.  Under the One Cent plan, the sum of all discretionary and entitlement spending will have to go down from one year to the next, by one percent or more.

Sadly, a large majority of the members of Congress (of both parties) are so isolated from reality that they cannot see their way clear to support such commonsense legislation, even though it has substantial support in both the US House of Representatives and in the US Senate.  They just can't turn loose of the idea of spending more money—for our good, of course.

Let me give you a small example of a boondoggle that is taking place in my area that was instituted by two Republican members of Congress who boast of what they are doing for their constituents.  Both of these Congressmen are good, well-intentioned men, but they do not understand that their actions actually hurt, not help their constituents.

Frank Wolf and Tom Davis pushed hard to extend the Metro system in the DC area all the way to the Dulles airport.  They want to reduce air pollution, and reduce congestion on the roads.  Their "gift" to their constituents will do neither.  And, worse than that, it has the net effect of reducing the standard of living of all citizens in their Congressional Districts.  Davis is now retired, but his misguided plan lives on.

The new "Silver Line" as it is now called, will begin operation in 2013, and finally reach Dulles Airport a few years later.  The construction costs will run into the billions, and the automobile drivers are forced to bear that cost via tolls on highways whose capital cost has already been paid.  But frankly, the cost of construction, as bad as it is, is only the tip of the iceberg.  At least the capital cost of construction will come to an end.

The annual revenue shortfall to operate the Silver Line is estimated at more than $170 million!  And knowing the consistent inaccuracy of cost estimates by politicians and bureaucrats, I think that we can safely say the overrun in costs will approximate $200 million or more, with the shortfall rising in future years.

The reality is that the Wolf-Davis boondoggle will lower the standard of living of all citizens in their districts, and be especially painful for the lower income workers.  Wolf and Davis are poster boys for what is wrong in Washington, DC.  They have consistently voted for bills that are unconstitutional, but which they believe are justified because they help people.

The problem with Congress stretches far beyond the Democratic Party.  The Republican Party is equally to blame for ignoring the Constitution and going along with calling reductions in increases in spending, cuts.  This foolishness has to stop.  Our children and grandchildren deserve better.

We sent them a message in 2010, but they have not listened.  It's time to send them another message in 2013 (off, off year elections) and in 2014.  The Tea Party must rise again!  If you and I don't act, we will have betrayed our children and our grandchildren.

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