[PEN-L:9713] RE: US gov't budget issues

[sawicky@xxxxxxxxxx (Max Sawicky)]

For the life of me, I don't know why I didn't know why the projected
surpluses of the US government are to some extent based on the assumption
that certain civilian discretionary programs will continue to be cut... Did
you mention this, Max?
>>

As the president would say, it all depends on
what the definition of "cut" is.

In reasonable budget parlance, "cut" means less
relative to a counter-factual known as the "baseline."
What's a baseline.  Well, it's whatever you'd like it
to be.  A sensible definition is tax and spending
assuming "no change in policy."  You'd think this is
clear, but it is not.  "Change in policy" is clear
in terms of tax law and entitlements; it means no
change in the law.  These programs are automatic
in the sense that their proceeds or outlays are
specified in terms of the characteristics of
persons.  They can grow or fall depending on
changes in the CPI, demographics, etc.

The squirrely part is non-entitlement spending,
aka discretionary spending.  "Change in policy"
begs the question of just what the policy is.
In the WIC (Women Infants and Children nutrition)
or Head Start programs, for instance, there are
qualifying characteristics, but those who 'qualify'
have no inherent legal right to benefits, much like
the new TANF program, and unlike the assassinated
AFDC program.

A minimalist definition of "change in policy"
that was used until 1994 is spending adjusted
for inflation.  So if a program costs $1,000
this year, the baseline level for next year
under 2% inflation is $1,020.  So any spending
less than $1,020, albeit greater than $1,000,
is understood as a "cut."

This definition was too liberal for Newt & co.
in 1994.  They began a campaign to redefine
the baseline in simple nominal terms.  Thus
the baseline for next year, and for every
year into perpetuity, would be $1,000,
just like this year.  Thus $1,020 could not
be a cut.  Only $999 could be.  Newt et al
successfully browbeat the press into using
this definition.  Only now with the prospect
of a large tax cut have the Democrats begun
making reference to the baseline in terms of
current services.

The definition dovetailed with budget rules
in the sense that discretionary spending is
formally subject to fixed dollar caps in the
range of $550 billion annually (defense plus
domestic).  So when you put the caps together
with no change in tax/entitlement law, you
get about $1,000 billion ADDITIONAL* surplus
in aggregate for the next ten years.

Thus a tax cut of $800 billion as approved
by the Repugs in House & Senate eats up the
entire trillion.  The reason is that interest
payments go up, for failure to run surpluses*
that reduce public debt.  The 'financing cost'
of the $800 b tax cut in this sense is about
$150 billion.

The surplus* projection is justifiable in the sense
that the caps are in law, and therefore "current
policy."  But the policy is idiotic, so the surplus*
projection is too.  Only in the past few months,
to combat the tax cut, have the Democrats begun
making vague references to a baseline understood
in abstraction from the caps, which is called
a 'current services baseline.'  You can find
the numbers for this buried in one of the budget
volumes.

The Wellstone piece is the first thing I've seen
by anybody except yours truly which points out that
both the Dems and Repugs budget proposals are cuts
in terms of current services.  (The same is true of
the President's budget.)

*Unfortunately, PW is still dispensing the swill
that the surplus* should be defined only in terms
of the trillion dollar 'on-budget' surplus.  When
Social Security Trust Fund surpluses are included,
the ten-year total is three trillion, not one.

Politicians of both parties have gotten a lot of
mileage out of the idea of the SS surplus being
"stolen" for spending (repugs) or for tax cuts
(dums).  But debt pay-down is no different.  In
all cases the Trust Fund transfers its cash to
the Gov and gets bonds.  The Gov might spend it,
do a tax cut, or pay down debt, but the Trust
Fund is absolutely unaffected.  Clinton's
brilliant innovation is the recycle the cash
thru the Fund an extra time and give it more
bonds.

The problem in more easily understanding this
lies in how stupid it all is.

mbs