While I sit contemplating the yet-to-be-passed-in-the-Senate debt deal, I feel that many people mulling over this compromise lack an understanding of exactly what the proposed “cuts” in the bill mean. It’s not hard to see why. Most individuals, when constructing a household budget, do not typically plan ahead to spend more than what’s coming in. Sadly, this is exactly how Washington operates, and one of the big reasons we’re in this mess. It is something known as baseline budgeting. I’ll get to how this affects the cuts in just a minute; for now, I’ll briefly explain how this works:
Say you make $50,000 a year. You make your plans around that $50,000. Even credit card purchases are made by the smart consumer with the understanding that those purchases should still fit within that framework. Going beyond is what gets a person in trouble. Moving on- say that one year, you end up spending beyond those $50,000; say, $60,000. Now, say that as you are constructing the budget for next year, you plan to spend $60,000, because that’s what you spent the year before. You still make $50,000, yet you plan based on the overspending of the year before. Voilà. Baseline Budgeting. And that, ladies and gentlemen, is a nutshell explanation of how Washington operates.
How does this apply to the spending cuts the bill currently passed in the House and moving through the Senate? Because Washington can’t seem to shed the baseline budgeting habit, those cuts will come off the top of the overspending. So, in a simplified manner- let’s say Washington is overspending by 9, and spending cuts of 2 are proposed. This means that rather than an actual spending cut, Washington will now only be overspending by 7. The key is this: overspending is STILL taking place!