The so-called "supercommittee" did not reach an agreement on Nov. 21, practically opening the door for the automatic cuts.
But it may be irrelevant, according to Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University.
She analyzed data from the Congressional Budget Office (CBO) and showed that, with or without the automatic cuts, federal government spending would still increase by $1.6 trillion between fiscal years 2013 and 2021.
“It’s totally meaningless,” said de Rugy in reference to the supercommittee’s deliberations. “It’s much ado about nothing.”
The Budget Control Act, passed on Aug. 2, raised the debt ceiling (to allow more federal borrowing) and created the Joint Select Committee on Deficit Reduction, the supercommittee, responsible for presenting legislation by Nov. 23 to trim the deficit by $1.5 trillion over 10 years. If an agreement is not met of at least $1.2 trillion in deficit reduction, the automatic cuts (sequestration) will go into effect.
“Changes in spending from sequestration result in new budget projections below the [CBO’s] baseline projection of spending based on current law,” de Rugy reported last week. However, the reductions are not as large as one might expect.
When analyzing the CBO inflation-adjusted estimates, de Rugy first looked at the baseline for federal spending without a sequester and found an increase of $1.7 trillion. De Rugy then took out the projected cuts that would occur with an automatic sequester for each department.
“What you find is basically that with or without the sequester, the only result is more spending,” she said. “It’s likely less spending with the sequester than the government is planning on spending, but it’s still much, much more spending.”
For instance, in the first year with the automatic trigger (FY2013), the federal government would spend $3.62 trillion, as opposed to $3.69 trillion without the trigger. That translates into a spending “cut” of $7 billion.
By FY2021, de Rugy reported, “the government would spend $5.26 trillion versus the $5.41 trillion projected,” which translated into a saving of $15 billion.
But “these cuts, we have to remember, are cuts from the baseline,” said De Rugy, who received an M.A. in economics from the University of Paris IX-Dauphine and a Ph.D. in economics from the University of Paris-Sorbonne.
“It’s not like you spend $10 today and it means tomorrow you’re going to be spending less,” she explained. “It’s you spend $10 today, you are projected to spend $20 tomorrow, it’s from this $20 that the cuts are – the amount is taken out. So people get very confused about that.”
Baseline budgeting has its origins from the Balanced Budget and Emergency Deficit Control Act of 1985. Under the process, the federal government assumes spending will continue to increase based on projections on the economy, inflation and unemployment.
Dynamic scoring, on the other hand, assumes the size of the economy is fixed.
“Overall,” De Rugy said, “without a sequester, federal spending would increase $1.7 trillion. With a sequester, federal spending would increase by $1.6 trillion.”
Critics have warned against the automatic trigger, which will divide its savings equally from defense and non-defense discretionary spending. Defense Secretary Leon Panetta called the potential cuts to the Department of Defense “devastating.”
However, according to De Rugy, “A further breakdown of the percentage of budget programs reveals that sequestration provides relatively small reductions in spending rates across the board.”
If the trigger takes place, defense spending will increase 18 percent as opposed to 20 percent without it. Non-defense discretionary spending and Medicare will increase 12 percent instead of 14 percent, while net interest will increase 136 percent instead of 152 percent.
“When the public hears ‘cut,’ it thinks that spending has been significantly reduced below current levels,” said De Rugy, “not that spending has increased.
“I just don’t quite understand what the fear is,” she continued. “And to be completely honest, I actually think that it distracts us from the reality, which is, that the super committee, whether it comes up with an agreement, a package, or not, we’re not addressing our long-term debt problem.”
Thursday, the U.S. debt surpassed $15 trillion – equal to $160,545 for each full-time private-sector worker in the U.S., as CNSNews.com reported.
“We’re not Greece yet,” said De Rugy, who believes the U.S. debt crisis is more analogous to Italy.
“Italy is a rich country, and yet it’s accumulated so much debt,” she said. “It’s accumulated debt, and at some point investors started doubting that Italy is still a good place to invest your money,” leading to massive increases in interest rates.
“That could happen to us. Right now, actually, because it’s not happening to us, because Europe looks so bad, it makes us look better,” she said.
“But, I always say not being the ugliest one at the beauty pageant, doesn’t make us pretty," she said.