Coyote Blog

Kevin Drum is claiming that the government has already done much fine work on deficit reduction, reducing spending by $1.8 trillion and increasing taxes by $600 billion.

This is fantasy, pure and simple, and perhaps why the term "reality-based community" has fallen out of favor among Progressives.   There has been and will likely be no reduction in spending -- these "spending cuts" are merely reductions in spending growth rates from the Administration's initial wet dream spending proposals. I am sure the tax increases are probably real, but Obama and the Congress were already proposing to spend most of those in new stimulus and other boondoggles right in the end of year tax legislation.

The tax numbers are characteristic of the stupid budget games played by both parties.   For example, the recent tax law represents a tax increase over law in place on 12/31/2012, but represents a massive tax cut vs. law set to be in place on 1/1/2013.  This gives the administration cover to call it both!  When it wants to portray itself as a deficit hawk, as in this case, it was a tax increase.  When it wants to portray itself as being populist, it was a tax cut.

Charts like this are absolutely worthless.  We will likely get deficit reduction over the next few years, but it will be entirely due to rising tax revenues from an improving economy.

And here we are back to my constant theme -- if you want to posit a trend, then show the trend.

If it's June, it must be time for me to mock Arizona budget games.  To save re-writing the old post over and over, here is what I wrote several years ago.

In May of this year I got a form from the Arizona Department of Revenue that said my company was now large enough to make estimated sales tax pre-payments.  Some states do this when you are large enough - they don't like you holding their sales tax money a whole month until the reporting deadline, they want their cash in hand.  Its a pain, so I sighed, but we did it.  We prepaid estimated full-month June sales tax in mid-June as required, rather than in mid-July when the payment would normally be due.  Note that we still have to fill out all the sales tax reports in July, so paperwork is doubled, not to mention the extra work to reconcile between the estimate and actual results.

So this month, I was looking for the July pre-payment form.  I figured the July pre-payment must be due soon, so I called the Department of Revenue and asked where my form was.  They said there was no form for July.  The pre-payment is only one time.  I said, "its only for June?" and they said yes.  You can see the blank form online is hard-coded for June.

Then it dawned on me:  Arizona is on a June 30 fiscal year.  The entire point of this exercise is to pull July revenues into June to artificially inflate the prior fiscal year financials.  Wow - all those pious government workers artificially manipulating results just like an evil old corporation.  Because there is absolutely no other reason to do this for just one month.  The time value of money gained is dwarfed by the costs of changing your payment processing approach for just one month, and is certainly dwarfed if you consider the extra taxpayer effort required (which of course the government never does).

But it's even worse!  Because, in effect, this only worked one time -- the first time.  The first time they did this, they helped the fiscal year.  But now, pulling forward July this year just offsets losing the July revenues from last year.  So politicians have saddled us with a tax process that costs the government more money and the taxpayer more time and has no benefit beyond generating a slightly more positive press release about the budget for some politician several years ago (whatever year this was first implemented).

I think most folks were shocked that the CBO scored the Baucus bill as deficit-neutral.  Well, we are starting to understand why (by the way, these are not criticisms of the CBO, but of the Senate).  So far, three major budget tricks have been identified:

1.  Now-you-see-it-now-you-don't Medicare cuts.  Via Michael Tanner of Cato:

When the Senate Finance Committee released CBO scoring of its health care reform proposal last week, we warned that its claim of reducing future budget deficits was achieved only through dishonestly assuming that Congress will implement a 21% reduction in Medicare payments that is scheduled under current law. We pointed out that Congress has been supposed to make those reductions since 2003, and never has.  Now"”surprise, surprise"”Democrats have introduced a bill to eliminate the scheduled cut, at a cost of $247 billion.  But Democrats cleverly are putting the new spending in a separate bill, so it won't change scoring of health care reform.   Have they no shame?

2.  Transfer of costs off the Federal budget to the states (which the CBO does not score).  Via Glen Reynolds

Gov. Phil Bredesen warned Tuesday that pending federal health care legislation could cost Tennessee far more than the $735 million "best estimate" his administration previously has cited.

The $735 million would stretch over five years, but "in addition, there are huge unknowns for the states in this reform," Gov. Bredesen said, estimating that those costs, if realized, could exceed another $3 billion from 2014 to 2019. . . . "I'm glad they're trying to do it without increasing the federal deficit, that certainly is important," said Gov. Bredesen, a Democrat who has been critical of the plan's impact on states. "But to turn around and increase the state deficits as the way to handle it that does not seem a very appropriate way to do that."

3.  Match 7 years of expenses with 10 years of revenues.  From an earlier post:

Bruce McQuain points out something I think has not gotten enough attention in the health care bill.  The new taxes being proposed start in 2010, but the benefits don't begin until 2013 and are phased in through something like 2018.  That means for any 10-year budget look, there are 10 years of taxes but only 6-7 years of benefits.  And even with this trick, the plan STILL adds a trillion dollars to the deficit, even before the certainly more pessimistic CBO numbers come in.