Here We Go 'Round the Mulberry Bush

 

Here We Go 'Round the Mulberry Bush

Before I rip on "The Sequester" that kicked in last week, a note about my last week's column about an enhanced public transit system for Pinellas County: the latest news story indicated that the Pinellas Suncoast Transit Authority will formulate a complete plan over the next 20 months. The referendum election, to raise the sales tax from 7 to 8 per cent is in November, is nine months away. How can voters vote on a plan that won't be completed until 11 months after the vote? If someone has the answer, I'd like to see it.

  Now, back to sequestration, by which, starting last week, the federal government will tear out $85 billion from its budget. This was a deal proposed by President Obama and his economic advisors to get around a budget impasse in 2011. Sequestration was not supposed to happen. It was supposedly so drastic neither party would tolerate it.

  To make sure it didn't stick, a bipartisan committee (Super Committee) was selected to formulate a new plan to replace it. That didn't happen (President Obama was out campaigning). Nor has anything else happened. Democrats want more tax increases, Republicans want more cuts. No one agrees. So, where are we?

  Let's start at the top. First, the cuts are only about 2.5 per cent of the $3.6 trillion federal budget. Small problem, or two problems, however. The cuts occur only to defense and discretionary domestic spending. Big entitlements, Social Security and Medicare and Medicaid are not part of them (other than peripherally). That means the cuts only effect about 40 per cent of the budget. Effectively, that means the cuts are almost double the above mentioned rate. Also, cuts have to be across the board. That is, applied evenly to everything regardless of priority. A GOP proposal to provide flexibility was turned down by President Obama.

  Besides that the cuts are $40 billion to defense and $30 billion to domestic and $10 billion to Medicare suppliers. And, not all of this is immediate, but dragged over some time, etc. All very confusing and complex, and very political as well as very stupid. 

  However, in a broader picture consider that the government won't have less money to spend. They'll actually have slightly more, but not as much as was planned and budgeted. Remember, "cuts" in federal government talk means cuts in what was asked for.

  Some are saying this is good. Cuts are being made. Most say "yes" cuts are being made, but in the wrong places without even touching the entitlement reforms needed, not to mention tax reforms, or removal of so-called loopholes. No one really knows how bad it will be if nothing is done to correct it. President Obama wants more tax revenue before he'll consider cuts; Republicans want more cuts and say that Obama got $700 billion in tax increases at the end of last year.

  As for tax reforms, which really means higher taxes for the wealthier, Republicans had them on the table much earlier, but pulled them after the other tax increase deal. However, count on that being a part of some deal at some time. Also, if entitlement reforms ever come, they'll come at the expense of the more well-to-do. Of course, all this, including  sequestration reduces the annual deficits and and slows the growth of the debt, now near $17 trillion.

  The urgency is the concern that if interest rates go up from the historic low they are now, the annual payment on the debt (interest only) could easily double. Catching up with that run-a-way horse wouldn't be pretty.

  In the meantime, some prominent people such as billionaire New York Mayor, Michael Bloomberg, had a few things to say. He's not too worried about NYC, thinks that the deficit needs to be curtailed, but made the observation that the world will lend us an "infinite" amount of money. He noted: " If you owe the bank $50,000, you got a problem; if you owe the bank $50 million, they got a problem".

  As for cutting spending through "waste", he made this concluding remark: " One of the problems is the definition of "waste". You think the programs that I want are waste. And I think the programs that you want are waste….everything we have was put in by Congress, signed by the president. There was a reason for it, or a constituency for it. Most of the tax breaks are designed to encourage or discourage economic activity. There's a reason for it".

  I think he nailed it and the problem. But it is scary that we might consider ourselves too big to fail and can borrow "an infinite amount of money".  Sounds like the housing boom that triggered most of this mess.

 
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