Baseline Budgeting

Republican ElephantIt’s pretty much a done deal.  Today is March 1st and sequestration is looking more and more like reality.  President Obama will sign the sequestration legislation into law at 11:59:59 PM tonight unless Congress gets on its horse and miraculously does something.

I still neither grandstand nor cheerlead for the sequestration, but as I said we have to do something and we cannot get the President and Congress on the same page—and this is not just about party lines anymore; Senate Democrats don’t seem to want to work with President Obama either.  If we leave things status quo, the deficit will reach a point of no return and American will go the way of Greece and be bankrupt.

One thing I want to point out is that even under sequestration, spending will continue to increase; only the rate of growth will be reduced in a draconian fashion.  It is by no means the final step and the next stop on this train to doomsday, as it were, is March 27th, when a decision on the deficit ceiling has to be made.  If the right decision is not made, this sequestration is going to be Romper Room compared to what is coming.

What do I mean by Baseline Budgeting?  Let’s say you decide to buy a new car.  Your car still running but getting up there in mileage and you decide to buy a new one.  You have to get one you can afford so you set what is called a baseline.  Based on your income, expenses, and other factors, you decide you can afford a maximum monthly payment of $500.  When shopping around, you come across a car you like that is a little less expensive than the cars you were focusing on and your monthly payments for this car are $300.  So this is the car you buy and because you are $200 below your baseline, you present yourself as saving $200 a month.  In reality, your monthly expenses just increased by $300; but because you were prepared to increase your monthly expenses by $500, your monthly expenses rate of growth is $200 less.

Under sequestration, the rate of growth is 0.6%.  Low, but still growth.  You are still draining the bathtub with the water running, but instead of the spigot opened at full force, you have it on slow-trickle.  The federal budget cannot be balanced with zero growth, since inflation will ultimately raise the cost of maintaining the status quo.  We did have to send a message for the need for spending cuts and the one thing nobody can deny, is it is a start.  But in the words of Robert Frost, we have miles to go before [we] sleep. 


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