By Jon Cassidy | Ohio Watchdog
The most selfish generation is shivering in abject terror. Its phantom menace: the so-called “fiscal cliff.”
It’s a pathetic sight, like a drunk getting delirium tremens at the thought of cutting back from 13 drinks a day to 12.
Those numbers aren’t random. The automatic spending cuts due to go into effect Jan. 1 would cut $109 billion from a federal budget that’s been running a $1.3 trillion deficit in recent years.
Once you add in all the changes taking effect with the New Year — the expiration of the Bush tax cuts and the Obama payroll tax cut, implementation of new Obamacare taxes, the $109 billion in automatic spending cuts known as sequester, etc. — you end up cutting the deficit by about half.
This is the prospect that has Washington in fear and loathing — not that we start to pay our debts, but that somehow we can’t even afford to slow down the rate we’re running them up.
The Congressional Budget Office says the unemployment rate could hit 9.1 percent within a year if we go off this “fiscal cliff.”
So what do we get for that sort of pain?
By 2021, annual federal budget will be $1.7 trillion bigger without sequester, according to a study by Veronique de Rugy of George Mason University. With the cuts, its growth will be $1.6 trillion.
In other words, it’s trimming around the edges — with cuts of $55 billion to defense and $55 billion more spread across the rest of the $3.7 trillion federal budget — not some sort of austerity package from hell.
Actually, it’s the opposite of austerity — most of the deficit reduction would come through tax hikes.
The CBO estimates that the “cliff” consists of $399 billion in new taxes plus $102 billion in spending cuts, which would reduce the annual deficit by $607 billion in the first year. If you’re wondering how four plus one equals six (hundred billion), that’s the amazing math of deficit reduction. You save $105 billion just from interest payments that don’t have to be made.
Most of Washington is balking at the prospect of actually paying for the giant lump of government it has created. Erskine Bowles is co-chairman of the National Commission on Fiscal Responsibility and Reform, which came up with a deficit plan that was widely respected and just as ignored.
“What we face (in the fiscal cliff) is the most devastating financial disaster in history,” he said recently. “It also happens to be the most avoidable financial disaster in history.”
If actually paying for a good chunk of government turns out to be so utterly devastating, then the conclusion is inescapable: We can’t afford this much government. Putting the cost on credit helps nothing. It just delays the day of reckoning, which the average taxpayer understands much better than Congress.
There’s a sliver of good news for Ohio.
If the spending cuts do take effect, we have less to lose than other states, because the federal government spends way less than average here.
According to a new study by the Pew Center on the States, federal spending makes up 5.3 percent of the average state’s economy, but it’s just 2.8 percent of the Ohio economy. Ohio gets about half its due, whether the category is defense spending, civilian spending or number of government employees.
That doesn’t mean it’s painless. A study by Stephen S. Fuller, a professor at George Mason University, found that Ohio would face 40,403 job losses and $4 billion in lost economic activity over two years if sequester takes place. Roughly a third of those jobs would be direct losses; the other two-thirds would be part of a ripple effect.
Frankly, we don’t care.
Taxpayers should feel the full burden of the entitlements they’ve voted themselves, rather than pass the cost to the next generation, but we don’t expect the most selfish generation to face facts. Debt is a form of lying; it’s a way to pretend that government doesn’t cost as much as it does.
Whether President Obama and Speaker of the House John Boehner, R-Ohio, are able to work out a deal in the next month won’t matter much in the long run. If this month is remembered at all, it will be as the time America finally noticed it couldn’t afford the monthly minimum on its credit card.
This is just foreshadowing.
The problem of unfunded liability in Social Security, Medicare, and federal retiree benefits is already out of control, while most folks are barely aware that it exists.
Even a $16 trillion federal debt that averages out to more than $50,000 per person pales next to the $86.8 trillion in unfunded liability the federal government has run up. In 2011 alone, Social Security and Medicare accrued costs of $7 trillion, while your average congressman can’t even tell you what an accrued cost is.
According to former Securities and Exchange Commissioner Chris Cox and Bill Archer, former chairman of the House Ways and Means Committee, that amount and more would need to be set aside each year to cover eventual retiree program costs.
“When the accrued expenses of the government’s entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually,” they wrote Monday in the Wall Street Journal.
That would be impossible, of course; there’s just not enough money out there.
So let’s have a golf clap for a Congress that may manage to raise another $500 billion in spite of itself — and a slap for a Beltway full of hacks preaching that the only thing foolish about debt is paying it.
Contact Jon Cassidy at [email protected]