Chicken Little, that famous feathered friend who cried "the sky is falling" is at it again. Politicians all over Washington are shouting out that if "sequestration hits" the end will occur; no police, no fire, no air controllers, no food safety... nothing! Well forgive me if I'm a little cynical about this. How many times in the past have we heard this from these people who find their power strengthened by creating fear that the end is near? Let's remember, "Sequestration" was a political gimmick created by President Obama because the last time these non-leaders couldn't settle on a budget, Obama created this to politically get them all off the hook with the voters. So what's really going on?
Here are some important facts to consider; the U.S. economy is $15.6 trillion dollars; U.S. debt is around $16.5 trillion dollars; our federal SPENDING is around $3.0 trillion dollars and our federal income is around $2.8 trillion. OK, quick math, we're adding around $1.2 trillion per year to our already oversized debt. As a result of this, the debt rating agencies have of course lowered our credit score and threatened to lower it again, so the very people who are responsible for putting us in this malignant position are now screaming because we have to cut back spending, or raise taxes. This forced cutting known as Sequestration was supposed to hit January 1, 2013, but the politicians in Washington of course wouldn't work it out then so they postponed it until March 1st.
In order to put this fully into perspective, we need to understand two more critical facts about the U.S. budget. First, there are two sides to the budget; mandatory and discretionary. The mandatory spending which is stipulated by law includes Social Security, Medicare, Medicaid, veteran's benefits & interest on the debt. Without changing LAW, they cannot change these outflows. The discretionary side is set by budget agreement between Congress & the President and includes everything else; the 4 million federal employees of the Dept. of Defense, Debt. Of Labor, Dept. of Commerce, Dept. of Agriculture, Dept. of Human Service, Dept. of Education, Dept. of Transportation, Dept. of Justice, Dept. of Interior, Dept. of Energy, Dept. of Housing & Urban Development, Dept. of Treasury and the Dept. of State; and yes, the President's personal "Executive office of the President" containing 1,800 people. The Sequestration process affects ONLY the discretionary side of the budget.
The second important thing to understand is the budget process which is based on a unique, (only in government) concept referred to as "base-line budgeting". In business, or in your home, you set budgets based on how much money you bring in and how you wish to allocate that money. If you spend more, you've increased spending, if you spend less, you've cut spending. In government, budgets are set based on what you spent last year. So if last year, a given department spent $250,000 then the beginning point for their budget for this year is $250,000 PLUS an estimated increase based upon inflation. So if inflation is recorded as 2%, their budget for this year is $250,000 + 2% or $255,000. Therefore any spending increase LESS THAN 2% is a "cut" and any spending increase OVER 2% is an increase. Put your mind on this idea for a minute; how in the world would anyone be incented to reduce spending if their budget, power and livelihood were based on making sure they spend 100% of any years allocated budget? If they spend less than their allocated budget (a good thing in the private sector) their budget for subsequent years is forced to be less. If one thing were pointed out that is largely to blame for our bloated government, this budget process should be considered!
So considering this, Sequestration is calling for a roughly $85 billion reduction in spending (around 2.8%) of which only about $45 billion will actually happen. About half of this will hit the Defense Department and about half will hit the balance of discretionary budgets. So first ask yourself this; does a 2.8% reduction in a vastly over-bloated government really cause the end of life as we know it? The answer is NO. The thing that has Washington all upset is the process by which these "draconian" 2.8% reductions will happen. The process designed by President Obama takes a straight across the board cut of 2.8% so that results in each and every program, department, staff, etc. getting a 2.8% cut. Well, the bureaucrats don't like that too much because it doesn't allow them to take into account their own special pet projects. Too bad for them, but let's not forget it was THEM who got us into this mess in the first place.
There is a problem with the defense cuts and let me explain. The defense budget last year was around $690 billion; more than the rest of the world combined. With cuts that came through last year adding to this round of cuts, the defense budget forward is around $600 billion. The issue here isn't that $600 billion isn't a lot of money, but the current defense mandate is to support a global military presence and a reduction of almost 20% in their budget makes that almost impossible. So, the defense department's budget reduction forces changes to be made to their strategic objectives. This is serious stuff. In recent months, the Russians have flown nuclear bombers over U.S. territory in Guam, and the Chinese defense department has been discovered being the leader in computer hacking of U.S. business and government computer systems. Both of these nations understand our economic problems and they are not shy about taking advantage of them. This is perhaps the only part of this entire process that is cause for concern.
The bottom line is this in order to sustain our nation's prosperity we need to get control of Washington and its enormous appetite to spend our money, our children's money, and our grandchildren's money. The Sequestration process will not end life as we know it and when all is said and done, it will end up proving that cutting back Washington's bloated budgets will not kill the American economy!