The Obama administration is whipping up hysteria over the sequester budget cuts and their impact on the economy, the military, first providers, and so forth and so on. Armageddon. But if you climb into the Congressional Budget Office numbers for 2013, you see a much lighter and easier picture than all the worst-case scenarios being conjured up by the administration.
For example, the $85 billion so-called spending cut is actually budget authority, not budget outlays. According to the CBO, budget outlays will come down by $44 billion, or one quarter of 1 percent of gross domestic product (GDP is $15.8 trillion). What’s more, that $44 billion outlay reduction is only 1.25 percent of the $3.6 trillion government budget.
So the actual outlay reduction is only half the budget-authority savings. The rest of it will spend out in the years ahead – that is, if Congress doesn’t tamper with it.
And please remember that these so-called cuts come off a rising budget baseline in most cases. So the sequester would slow the growth of spending. They’re not real cuts in the level of spending. (Not that a level reduction is a bad idea.)
Looking at the sequester in this light, it’s clear that it won’t result in economic Armageddon. In fact, I’ll make the case that any spending relief is actually pro-growth. That’s right. When the government spending share of GDP declines, so does the true tax burden on the economy. As a result, more resources are left in the free-market private sector, which will promote real growth.
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