As we wait to see if Congress and the President will go over the fiscal cliff at the end of the year on taxes and spending, it’s important to remember that the options involved are very well known to both parties in Washington, D.C.
It was just a year ago that we were wondering if the “Super Committee” could broker a deal on tax and budget policy – they could not.
Since they were unable to reach an agreement, that set in motion the backstop in case nothing happened in Congress – automatic across the board budget savings over the next ten years, totaling $1.2 trillion – half from defense, half from domestic spending accounts.
Please note that I used the word “savings” in the last paragraph, not “cuts” – that is because not all of the $1.2 trillion in across the board savings/cuts would be cuts over the next ten years.
Instead, some of it would be a reduction in the planned growth of government spending.
For example, under current law, the spending limits for the budget outside of Medicare and Social Security – what is known as the “discretionary budget” looks like this in coming years:
2012 – $1.043 trillion
2013 – $1.047 trillion
2014 – $1.066 trillion
2015 – $1.086 trillion
2016 – $1.107 trillion
2017 – $1.131 trillion
2018 – $1.156 trillion
2019 – $1.182 trillion
2020 – $1.208 trillion
2021 – $1.234 trillion
You might notice that the budget will increase without any action by the Congress.
If my math is right, there would be $167 billion in extra spending added in between now (Fiscal Year 2013) and Fiscal Year 2021, but if you were to use $1.047 trillion as the “baseline” for the budget, then spending would go up much more than that.
Imagine if there was a budget “freeze” at $1.047 trillion between 2013 and 2021 – how much would that “save” every year, using the above figures? In other words, how much would you save by not increasing spending as planned over the next eight years above $1.047 trillion?
2014 – $19 billion
2015 – $31 billion
2016 – $60 billion
2017 – $84 billion
2018 – $109 billion
2019 – $135 billion
2020 – $161 billion
2021 – $187 billion
That totals out to $786 billion in increased spending over a “baseline” of $1.047 trillion for the discretionary budget.
That shows you why the “baseline” is so important in these negotiations, because the starting point can determine how much is saved or cut – depending on your point of view.
Those figures are also a reminder that when you hear about $1.2 trillion in automatic budget “cuts” over ten years, that might not provide the full description as both parties battle over the fiscal cliff.