Spending Cuts Are Mostly Fiction

Only in Washington could you get away with referring to both spending hikes and tax hikes as spending "cuts."

Would you like to save $20,000 this year? Of course you would. Here's how: Plan a month-long vacation to Disneyland, and budget $20,000 for the trip. Then don't go. Presto! You just "cut" your family budget by 20 grand.

This sounds absurd—because it is. Yet that is precisely how Washington operates.

A couple of weeks ago, President Obama claimed on national TV that "I cut spending by over a trillion dollars in 2011." But as many people quickly pointed out, in fiscal 2011 federal spending rose from $3.4 trillion to $3.6 trillion. Nevertheless, the President repeated the claim on Jan. 2, insisting that "last year we started reducing the deficit through $1 trillion in spending cuts." 

What he meant was that in 2011 he agreed to "cut" spending in future years, in much the same way canceling a future vacation "cuts" your own budget. It is a fiction necessary to sustain the president's pose that he wants a "balanced approach" to deficit reduction.

That is also nonsense. Take the midnight deal to avert the fiscal cliff, which the White House says will reduce the deficit $737 billion. Of that amount, $620 billion comes from raising taxes. Some balance.

The pretense of balance looks even worse when you pick apart other loaded language. In Washington, a "balanced approach" combines tax hikes and spending cuts in roughly equal measure. Pause and ask yourself: What's missing from that analysis?

Exactly right: revenue. Why omit revenue? Because including it shows the deficit is caused by too much spending, rather than too little taxing. Take the Bush tax cuts. While they did lower government revenue temporarily and slightly—from $2 trillion in 2000 to $1.89 trillion in 2004—revenue soon bounced back, and in 2007 reached a historic high of $2.6 trillion. In nominal terms, that's a 30 percent increase—in seven years—despite the tax cuts.

Trouble is, during the same period spending grew even faster, from $1.8 trillion to $2.7 trillion (a 50 percent increase).

The recession kicked the stuffing out of government receipts, which were about $2.5 trillion last year. Yet federal revenue is expected to rise to $3.3 trillion by 2015 and $4.3 trillion by 2020. That is a nominal 72-percent increase—in only eight years.

Spending, meanwhile, has continued to scream upward like a missile, rising from $1.8 trillion in 2000 to $3.8 trillion last year. Nevertheless, Democrats and progressives are trying to sell the fairy tale that spending cuts account for the bulk of recent deficit reduction. The Center for American Progress, for instance, claims "nearly three-quarters" of deficit reduction to date results from spending cuts.

But that's highly debatable. First, there has been no deficit reduction to date. The deficit reduction being discussed supposedly will take place over the next few years. More importantly: While certain federal programs have seen, or will see, small year-over-year reductions in appropriations and outlays, regarding the budget as  a whole the "cuts" are cuts of the not-going-to-Disneyland sort: They merely reduce the rate of future projected spending growth.

To see how, consider what the budget for future years looked like in August of 2010, before all of the supposed cuts that have been agreed to, and what the budget looks like now, after the fiscal-cliff deal and all the other changes.

According to the Committee for a Responsible Federal Budget, using figures from the Congressional Budget Office, two years ago Washington expected to spend $4.26 trillion in 2015. Now the projections suggest Washington will spend $4.30 trillion in 2015. Either way, that's an increase from the current $3.8 trillion.

It's the same story for 2020. After everything Congress and the president have agreed to, spending in 2020 is still projected to be $5.1 trillion—which is 34 percent more than we spent in 2012. So how can anyone claim to be cutting spending? Because two years ago, Washington had planned to spend $5.6 trillion in 2020. Since it now expects to spend less than that sum, that qualifies as a "cut," at least in the no-trip-to-Disney sense.

Granted, these numbers don't account for inflation. But inflation is so low it's not likely to change the real spending trajectory from upward to downward. The figures also assume the sequester cuts imposed by the Budget Control Act will never take place. Given what has just transpired, that assumption seems fairly safe.

The duplicity doesn't even end there. A few weeks ago Treasury Secretary Timothy Geithner claimed the administration had made $600 billion in spending cuts to entitlements. That claim was based on what the administration calls savings in mandatory programs. But as the AP notes, those "savings" included elements such as $60 billion in added revenue from a "financial crisis responsibility fee" and another $27 billion in "increase[ed] employee contribution[s]" to federal retirement programs.

In other words: tax hikes.

Only in Washington could you get away with referring to both spending hikes and tax hikes as spending "cuts." Perhaps it's time those inside the Beltway stopped getting away with it.