Fiscal Bluff: The Fiscal Cliff Spending Cuts Are a HoaxNovember 28th, 2012
When it comes to the fiscal cliff debate, politicians and media personalities have caught doomsday fever. Based on the alarming way in which they describe an upcoming scenario in which taxes will rise and future spending increases will be cut if Congress doesn’t come up with an agreement, one would think the American Republic was set to shut down forever in a matter of days.
In reality, the spending cuts are largely imaginary. The vast majority of the alleged budget cuts are actually reductions in future increases, meaning budgets are still set to rise, but by a smaller percentage. There are also some legitimate defense cuts to the 2013 budget, but they’re so tiny that no one will notice the difference. Let’s examine just how insignificant these spending cuts really are.
Baseline Budgeting Strikes Again
Politicians claim that $1.2 trillion in spending cuts over the next 10 years will occur if a deal isn’t reached by Congress prior to January 2nd, the date at which the sequestration “spending cuts” kick in from the Budget Control Act of 2011. They claim that these cuts will dismantle the US military and eviscerate entitlements, leaving poverty-stricken families to die of starvation in the streets.
However, future budget cuts nearly always refer to reductions in proposed spending increases. This is referred to by fiscal experts as “baseline budgeting.” In reality, government spending will still increase if we go over the fiscal cliff, just not as quickly as statists would have liked.
What About the Automatic Defense Cuts?
The John McCains of the world are running around like shrieking Cassandras, giving the impression that the US military will fold and Americans will be conquered by Al Qaeda terrorists if these automatic cuts are applied to defense spending. In reality, most of the spending cuts over the next 10 years are also to proposed increases.
There are some legitimate defense cuts built-in to the automatic cuts. For example, CNN is reporting that $63 billion would be cut from the defense budget in 2013, which would put defense spending at 2006 levels. This also means that, if these cuts were to go through, the US would still be spending more on the military than the top 10 defense-spending nations in the world combined. Back in 2006, did the US military fall apart, resulting in invasions from foreign nations? No. In fact, we had the most powerful military in the world back then.
To be fair, the tax increases that are set to occur would legitimately be harmful to the economy. Given that we’re still struggling with what may be later referred to as a second Great Depression, tax hikes will lead to further job losses at a time when society is already on the brink. Also, the government is spending at reckless levels and seems unlikely to stop, representing a real fiscal cliff that looms in the future — if real spending cuts don’t occur at some point, the US government will either have to default or debase its currency.
Regardless, don’t believe the hype being spewed by politicians and pundits. There are no real, serious spending cuts on the table right now. There is a fiscal cliff, but it has more to do with a lack of spending cuts causing bankruptcy in the future than the fact that there might be “draconian” budget cuts coming any time soon. Congress will reach a deal, nothing will get cut, and the can will be kicked down the road, again… for now.
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