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September 6th, 2011
 

A Penny of Spending Cuts for Every Dollar of Debt

More than half the members of the House of Representatives avoided holding customary town hall meetings during their August vacation.  No wonder they’re ducking the public.  The spin Congress put on the debt ceiling deal doesn’t jibe with the facts.

Now the six Democrats on the newly created deficit reduction committee are angling for another round of stimulus spending, a sign they intend to reduce the deficit by hiking taxes, not curbing spending.

Here’s what the fine print in the Budget Control Act of 2011 says, and why there’s trouble ahead.

Myth 1: A dollar of cuts for every dollar of debt hike

The deal allows the President to raise the debt ceiling by as much as $2.4 trillion over the next six months. Speaker of the House John Boehner sold it as “a step toward fiscal sanity,” claiming the deal  “includes spending cuts larger than the increase in the debt ceiling.” Don’t believe that.

The new law specifies  $917 billion in spending “cuts,” and depends on a deficit reduction committee to find the rest. The $917 billion are not cuts. Future spending will be higher than current spending but less than what was planned.  Washington calls this “baseline budgeting,” a Beltway colloquialism that has bamboozled the public for years.

Of the $917 billion in adjustments, only a microscopic $21 billion occur next year.  Two thirds of the “cuts” come after 2016. These are phony promises. No Congress can control what the next one does.  The public is getting about a penny of certain cuts for every dollar the debt is hiked.

The new law sets up a Joint Select Committee on Deficit Reduction –12 members of Congress – to propose another  $1.2 trillion to $1.5 trillion in deficit reduction over ten years by reducing future spending or raising taxes or both.  Republican leaders in Congress boasted that they made a deal without tax hikes. But hold onto your wallets.

Myth2:  The deal doesn’t raise taxes.

 

The deal already includes allowing the Bush tax rates to expire at the end of 2012. That means higher taxes on capital gains, dividends, small businesses and employees.  In addition, the Obama health law raises taxes $503 billion over a decade, and those tax hikes begin in 2013.

Despite these impending tax hikes, the six Democrats on the deficit reduction committee are pushing for they call a “balanced approach,” meaning piling on more tax hikes instead of focusing on spending restraint.

If Republicans don’t go along with the hikes and the committee stalemates (it has until Thanksgiving to agree on a plan) the Budget Control Act calls for automatic reductions in certain areas of the federal budget beginning in fiscal 2013. .  Defense is one sixth of the budget but it gets whacked with nearly half these adjustments. Defense Secretary Leon Panetta warned they would “have a devastating effects on our national defense.”

The deal puts the public between a rock and a hard place  – forced to accept more tax hikes or risky reductions in defense and national security.  “We can shoot you in the head or cut off your right leg,” is how former Speaker of the House Newt Gingrich summarized it.

One consolation is that such automatic reductions have been tried before and failed. What this Congress does can be superseded – undone –by any future Congress.  The net result is that the President Obama, who has increased federal spending 28% in three years, gets at least $2.1 trillion in borrowing authority to continue the spree.

On Monday, President Obama appointed Alan Krueger to head the Council of Economic Advisors. Krueger advocates adding a VAT to the nation’s tax burden. Here comes the Vanishing America Tax.

Don’t count on the Budget Control Act to restore America’s credit rating. In 2010, voters spoke clearly by electing fiscal conservatives to the House of Representatives.  But the Republican leadership passed over these newcomers in selecting the deficit reduction committee, and also passed over Rep. Paul Ryan and Senator Jim DeMint, the generals in the battle for affordable government. Voters need to elect a Congress in 2012 with the will to actually reduce spending.

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About the Author

Betsy McCaughey
Betsy McCaughey, Ph.D., is a patient advocate and former Lt. Governor of New York State. She is a regular contributor to TheIowaRepublican.com




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