Baseline Budgeting Makes Real Cuts Impossible in Washington
July 27, 2011
RUSH: So Obama has told the bankers secretly and privately, according to the Drudge Report, that we're not gonna be defaulting, that there will not be a default. Charles Gasparino had the story at the Fox Business Network. It's just as we've told you. There isn't gonna be any default and there probably won't be a downgrade. All of this is hocus-pocus.
Look at what a great lousy job the Drive-Bys have done in educating the American people on the subject of the debt ceiling. For instance, how many of you realize that we have more than doubled the debt ceiling in just five years? In 2006 the debt ceiling was $8.2 trillion. Now with what's gonna end up happening here the debt ceiling will be raised to $16.7 trillion. It's at 14.3 now. You would think that would qualify as news. And, of course, we're still not spending enough money for Obama. We're really being played for a bunch of saps, folks. We left the program talking about this yesterday in the context of the baseline, the way the budget is working. I have an even more shocking bit of news today to illustrate the baseline. For those of you that don't know what the baseline is and how baseline budgeting works, let me give you the real quick explanation of it. When you put together your budget, if you do one, you take last year's spending and income and you take a look at it and you figure out if you spent more than you had, or if you didn't spend more than you had, what did you do with what you had left over, where did it get spent.
If the next budget you prepare has to be smaller because your income's dropped, you start going through items, figuring out where you're going to cut. Your baseline is reality. Your baseline every year is reality. Your baseline is the amount of money you have to start with. That is not how it works in Washington. Baseline budgeting is based on the presumption that every item in the budget will automatically increase between three and 10% depending on what the item is, every year, regardless what happened in the previous year. This is why, for example, at the end of the year the agriculture department starts advertising for food stamp applicants because they want their budget to increase. So they don't look at the reality, and say, "You know what, we don't need this much money in this department. We have more money than we need. We don't have as many people needing food stamps as we have food stamps." They don't look at it and then cut back and tell the government, "You know what, you can cut us here." They will go out and give away food stamps in order to make sure they get that three to 10% increase. But that three to 10% increase every year becomes the starting point for every budget negotiation.
So, for example, when Obama passes the stimulus bill, another trillion dollars effectively is added to the baseline. No consideration is given to whether or not the money was spent wisely, wasted effectively or whatever. It was just spent. And because it was spent, there must be an increase in that line item every year. The way this manifests itself in Washington, the best way I have ever found to illustrate this is to put yourself in the situation where you're going to go buy a new car. You've looked at your budget, and you have decided that you can afford the monthly payment on a $40,000 car. So you go to the showrooms or you go to the Internet or you go wherever you look to buy a car, and you find a car you really love for $70,000 that the dealer tells you is on sale, that you can get it for 60.
So you and the family discuss it, and if you're like Washington, what you do is you tell yourself, "You know what? Let's get that $70,000 car that only costs 60, and we will save ourselves $10,000." But you haven't. You have spent $20,000 more than you originally allocated. You originally said you're gonna buy a $40,000 car, then you find one you really like for 70, on sale for 60, you plop down the 60, which is 20 more than you wanted to spend, and tell yourself you saved ten. That's how it works. That's baseline budgeting. That is how a cut or a saving is actually an increase.
Now, the best, most accurate illustration of where we are with the current baseline in the United States federal budget, I was sent a note from a legislative director of a member of the House of Representatives. I'm not gonna mention the name nor am I gonna mention the state. But trust me, it is a real person and of course it's a real state and it's a real legislative director. And here's the note: "One final thought to illustrate the absurdity of our baseline, and I'll leave you alone. If Speaker Boehner --" now, listen to me very carefully, folks "-- if Speaker Boehner were to propose that we simply freeze all government spending immediately, including mandatory and discretionary, meaning including the entitlements, if we just freeze everything and spend no more this year than we spent last year, the Congressional Budget Office would score that as a nine and a half trillion-dollar cut."
That's how out of whack the baseline is: A $9.5 trillion cut. Remember the $9 trillion figure we used at the end of the program yesterday. That is the cumulative total of automatic baseline increases for the next ten years. But if there's a simple budget freeze -- and of course there's not going to be. This is just an educational exercise. Again, now, this is not what is. It is how it is scored. If the Boehner plan were a simple freeze -- we're not going to spend another dime next year beyond what we spent this year -- it would equal a nine and a $9.5 trillion cut because the baseline in our budget obviously includes $9.5 trillion of new spending, minimum, over the next ten years.
So this is how when you hear a proposal reacted to by saying, "That's a Draconian cut! Look at what they're doing to school lunch programs." Nothing is ever cut! Folks, you don't need me to tell you. We have doubled the debt limit in five years. In 2006 the debt limit was $8.2 trillion. After the razzmatazz that we're going through now is finished and done with, it will be effectively be $16.3 trillion. We're at 14.3 now, and they're gonna bump it up by two trillion at some point in the next years two years it's gonna get there. Of course the Porkulus! They're not budgeting for Porkulus per se, but the money that Porkulus cost is automatically included in next year's budget. It could be for widgets. Whatever they spend it on is not known.
This is why it was so crucial for Obama to get that passed and Obamacare, too, because it ups the baseline -- and therefore the automatic increases are off the charts, and therefore it's impossible to actually cut and reduce anything. So whatever plan Boehner had to go back to the drawing board with -- or anybody, I don't care; Reid, you name it -- there's not one penny being cut from anything, the way it's being scored. Now, if there were a budget freeze, and if we didn't spend another dime, in the world of reality, it would be good. But Washington is not reality, and Washington budgeting is unlike any other.
You think Enron was bad? The way Washington does things is criminal. We don't have enough jails to put everybody in. So it's the best illustration yet. If we freeze spending -- if we did that, if we didn't spend one more dime next year over what we've spent this year -- people in Washington, the Democrats would say, "That's a cut! "Boehner is "cutting $9.5 trillion," and what they mean is, "There's $9.5 trillion in the baseline that's authorized to be spent that won't be spent, therefore we're cutting it. Just like you acting like 40 grand for your car, you find one for 70 that you like, it's on sale for 60, and you say, "Whoa, can't pass this up!"
So you plop down the 60 and tell yourself you've saved ten, when you've spent $20,000 more than you budgeted. That's how they do it. There are countless other examples on the reverse side of this. Let's say in your home you have enough toilet paper for six months but you look at the newspaper and there's coupons in there and the price of toilet paper is low. You go out and buy toilet paper for half price and you say, "Oh, man, I'm gonna go stock up! Look at what I saved." You didn't save anything; you went out and bought a whole bunch more than you needed! So you tell yourself you got a deal, that the unit price was half of what it would normally cost, but you didn't need it. Well, people in Reality Heights, where we live, cannot budget our lives the way Washington does.
We can't just assume that next year we're gonna have, you know, 50,000 more dollars income than we had this year. They do. They are assuming, they're acting out of the premise of the next ten years -- automatically, just by sitting there, without even passing new legislation -- there will be $9.5 trillion spent over the next ten years. Where is irrelevant right now. That comes later when they start actually doing the budget. The baseline just tells them what they've got to work with. Then, you know, the Appropriations Committee gets in gear and the lobbyists and where the money goes, then that's a whole 'nother ball of insider wax.
But when I got this e-mail last night, this put this in total perspective. We're sitting here and it's less than chump change what we're talking about now. After Speaker Boehner appeared on this program yesterday, then the president goes out there, and he starts asking people to call. I'm telling you, that place melted. Washington once again, the phone lines melted, because the American people may not understand the specifics of what I just explained, but they know instinctively, just as you do; that this is not how it works, that this is not right, that none of this is making any sense, and you're not buying any longer the fact that...
Speaker Boehner even admitted on the program yesterday: Obama gets a trillion dollars to spend today, the minute that bill's signed, and we maybe get our trillion dollars in cuts -- maybe -- over ten years. Which, of course, the "maybe over ten years" never happens because this Congress can't commit another Congress ten years down the line to whatever it does. The Congress ten years from now will decide what it's gonna do with its money. If a person who expects he's gonna gain a hundred pounds in a year only gains 75, he tells himself he lost 25 pounds. That's how it works. Yeah, I lost 25 pounds!" Really? You look 75 pounds heavier. "Well, I was gonna gain a hundred, but I only gained 75, so I lost 25 pounds."
I know some of you hearing this for the first time say, "No, Rush, you can't possibly know what you're talking about." Sadly, I do -- and if it's difficult to understand, it's because it's so outside the realm of reality. So we've got the figures here, the CBO baseline numbers for the years 2012 through 2021. For example, the baseline budget for 2021 is $5.7 trillion. It's already done. It's etched in stone. That's what, as of today, we're gonna spend in 2013, the baseline... There, that's the automatic increase. Nothing can be done about that. That's done. Oh, and, by the way, the increase over 2012 is $2 trillion. So we're committed to $2 trillion, almost $3 trillion of additional spending without anybody having a meeting. It's already the law.
RUSH: That's right. To the person who sent me the e-mail here: That is exactly right. If a government agency's budget is projected to grow by $100 billion next year -- if that's the projected growth, if that's how much more money it's gonna get -- but they end up only getting $75 billion, they run around and caterwaul and claim that they sustained a $25 billion cut. This is how the Democrats made all that hay back in 1995 talking about school lunch program "cuts." There weren't any. The school lunch program was increased. We were trying to balance the budget back in 1995 -- and, by the way, we succeeded. In the process we reduced the rate of growth by a lot of agencies but none of them got cut. We just reduced the rate of growth and over time things balanced.
But at the time the Democrats were running around saying Republicans wanted to starve children and they had little kids in New Orleans writing letters to members of Congress, the Republicans, "Please don't let me starve! I can't learn when I'm hungry! I can't study when I'm hungry," and all these letters made the news. But there were no cuts. There never are any cuts. There are only reductions in the rate of growth when you're talking about the federal budget. Never, ever are there any cuts. It's a trick that Washington has been playing. I forget when this all started, baseline budgeting, I forget when. There is a starting point for it, and it's fairly recent. In the last 50 years. I will have to jar my fertile gray cells to come up with it -- and, of course, the reason for starting it was to accomplish what has been accomplished. I'll tell you what, both parties in on this but the Democrats are A1 guilty of it all.
RUSH: Okay, here's the history of baseline budgeting. By the way, these credit rating agencies, they are not fooled by the games included in baseline budgeting. When the credit rating agencies talk about how the United States is going to lose its AAA credit rating if it doesn't cut at least $4 trillion in spending, they mean real cuts. I'm overflowing with e-mails here from people so I need to explain this again. I did not say that if we froze spending next year at current levels that we would cut $9.5 trillion dollars. That's the point. That's what they want you to believe. The way the federal budget is put together, over the next ten years there is an automatic budget increase of $9.5 trillion. It's already written in. It's just how baseline budgeting is.
Every item automatically increases by a certain percentage. It's the law, so to speak. And to show you how out of kilter and how out of whack it is, if the United States government does not spend a dime more next year than this, the Democrats would run to cameras and start wailing and moaning about Boehner and the Republicans cutting $9.5 trillion dollars from crucial programs for women, kids, minorities and the poor. That's what would happen. And then the average American public watching the news would figure that the Republicans are gonna cut $9.5 trillion dollars of crucial spending, when no cuts at all have taken place. It's simply the baseline automatically adds that $9.5 trillion whether it's needed or not and whether we have it or not, and we don't have it, so we print it or borrow it. And it would be simple to fix. It's called a Balanced Budget Amendment.
It's very simple to fix. You simply wipe this manner of budgeting off the books. You tell the US government, "You're Enron," you come up with a new law saying you can't do Enron-type-stuff or whatever accounting practice you don't like, doesn't have to be Enron, there are a number of others. But the point is even if we don't spend another dime, official Washington will tell itself that it's being deprived of $9.5 trillion dollars, when it's getting the exact same amount next year as it had this year. That's just how it works. Now, the genesis of baseline budget projections can be found in the Congressional Budget Act of 1974. Gosh, I can't tell you how much happened then. Watergate, OSHA, EPA, and all of this was done by Richard Nixon to try to make the left love him. All of this stuff.
Nixon was hate and despised. He hated that. He wanted to be loved. He gave them everything they wanted. They hate him more today in the grave than they hated him when he was alive. You can't buy love, especially from the left. They don't know what love is. Anyway, "The genesis of baseline budget projections can be found in the Congressional Budget Act of 1974. That act required the Office of Management and Budget (OMB) to prepare projections of federal spending for the upcoming fiscal year based on a continuation of the existing level of governmental services." It was Democrats, they ran the show then, basically saying, "You know what? We're gonna come up with a new budget that guarantees us every year an increase."
It's right here: "That act required the Office of Management and Budget (OMB) to prepare projections of federal spending for the upcoming fiscal year based on a continuation of the existing level of governmental services," meaning, no longer could you look back and say, "We spent X on this, and we don't need that anymore, so we're gonna wipe it out." You couldn't do that. You had to spend exactly the same. Well, of course that wasn't gonna last long. "It also required the newly established Congressional Budget Office," that's when that came into existence, 1974, the CBO. "to prepare five-year projections of budget authority, outlays, revenues, and the surplus or deficit. OMB published its initial current-services budget projections," and that's what the baseline is, current services budget projection.
In other words, to maintain current services, that's the baseline, "required the CBO to prepare five-year projections of budget authority," blah, blah, blah, in its "initial current-services budget projections in November of 1974, and CBO's five-year projections first appeared in January 1976. Today's baseline budget projections are very much like those prepared more than two decades ago, although they now span 10 years instead of five." That's right. This will not be fixed, this will not be dealt with until this current baseline is samuraied, 'til this current baseline's done away with. That's my point. That's my point. If we don't spend another dime they are gonna tell us that $9.5 trillion dollars are being cut. Nine and a half trillion dollars are not being cut. Nine and a half trillion won't be spent is what they mean, but the same amount of money spent next year as opposed to this year will be the identical thing and they would still call it a cut. We can't win this.
We can't win the word war because the vast majority of the American people don't know this, they're not gonna understand this, all they're gonna hear is, "Republicans cutting $9.5 trillion dollars, Social Security, veterans," whatever the Democrats come up with. And then the Republicans, the closer they get to actually making substantive cuts, the more intense the rhetoric of the Democrats becomes, and then the Democrats eventually cause the Republicans to cave and to fold.
Now, I want to take you back to Rush The TV Show, October 3rd, 1994. What is that? That's 18 years ago, right? That's how long we have been teaching. It never stops on this program. This is about a minute from a program October 3rd, 1994.
RUSH ARCHIVE: The notion that we can continue with baseline budgeting and continue the process as we have been doing now is only gonna lead to further disarray and higher deficits. What we need to do is get to real budgeting, and in fact a freeze. If we just had a budget freeze, freeze every item in the budget and then allow for inflation sized growth every year, whether it's 2%, 3%, 4%, or whatever it is, we could theoretically come closer to balancing the budget without raising taxes and without cutting spending than going through these particular little debates and arguments that we have. Right now with baseline budgeting every department gets a ten to 12 percent increase regardless how much they need and then if they only spend a 6% increase they say to the American people they've had a 6% cut when nothing has been cut, the budget's not being cut, the deficit really isn't being cut, it's only being refinanced with lower interest rates for a short time.
RUSH: And to prove it, when is the last time you saw the budget get smaller, versus how often have you heard Democrats whining and moaning about all the Draconian cuts in a Republican budget? You hear it multiple times a day. But there are never any cuts, never have been. I played that sound bite just to show you and remind those of you who have been around that long just how long this has been a teachable item on this program.
RUSH: By the way, folks, in 1987 Congress amended the definition of the "baseline" so that discretionary appropriations would be adjusted to keep pace with inflation. So they've just kept adding to the baseline. When you do that -- the definition of the baseline amended so that discretionary appropriation would be adjusted to keep pace with inflation -- before the automatic increase every year, before the scheduled automatic increase? You get to do that with your income? Nobody does! No business does. No private household does. But our federal government does.
RUSH: We go to the phones, starting in Queens. Bill, hello, sir. Great to have you with us.
CALLER: How are you?
RUSH: Good. Thank you.
CALLER: Okay, I thought maybe you could get Governor Andrew Cuomo, son of former Governor Mario Cooomo, on to explain baseline budgeting. Because when he became governor, he discovered that in New York we'd been baseline budgeting for years, and he wrote about it in the newspapers. The newspapermen were startled, quite frankly, to hear about it -- and all the local politicians were startled, too; and he actually got off it for this year -- and actually, I think, reduced spending a little bit, in the state of New York, of all places! So maybe you could get Governor Cuomo on, and he could discover it for the federal government.
RUSH: Well, I don't think anybody needs to "discover" it. I think they know exactly what they're doing. The lesson here is Governor Cuomo has -- we must admit -- balanced that budget, right? He has. It is remarkable. And what did he do to do it? He had real cuts in spending. He got rid of the whole concept of baseline budgeting. I mean that's a -- that's the lesson. I mean everybody in Washington knows what's going on. Every member of Congress understands the baseline. They live and die by it. My gosh, it's their lifeline, particularly Democrats. It is how they are guaranteed to spend more money each and every year, and it gives them this automatic lingo of "cut, cut, cut," and accuse the Republicans of being heartless, when there are never any cuts. They know exactly what they've got. It's gonna have to be written out of the law.