Why the Budget Cuts Will Never Happen

Rodney Johnson | Tuesday, November 20, 2012 >>


Right now there is a big push for renewable energy. One of the solutions is wind farms, those rows of huge windmills that sit on cliffs and in wide open prairies.

The generation of renewable energy is a common plank in liberal political agendas… usually. There is an exception and it sits off the coast of Massachusetts.

In the U.S. we have yet to tap one of the best places for a wind farm. That is: at sea. Given the wide expanse available for wind to blow unimpeded, it makes sense that wind farms just offshore would generate consistently high levels of electricity.

One of the best places for a water-based wind farm in the U.S. is off the coast of Martha’s Vineyard, which also happens to be a liberal political hotspot.

The idea of putting a wind farm off the coast there has met with intense opposition because it would ruin the view. Apparently, renewable energy is all fine and good, as long as it’s Not In My Back Yard (NIMBY).

We all want things to be more efficient, unless it means cutting our own resources.

We want government spending to be smaller, unless it means cutting a program that provides us a benefit.

In short, we want the pain of doing things better or smarter, as long as it is someone else that feels the pain. That’s why there is no chance the automatic budget cuts – called sequestered cuts in the current fiscal cliff conversation – will happen.

The sequestered or automatic cuts were part of a budget deal gone wrong in 2011…

When the Simpson-Bowles commission could not agree on $1.2 trillion in cuts over the next 10 years, the U.S. budget was automatically put on schedule to cut $1 trillion over 10 years, starting in 2013. The cuts have to come from the discretionary part of the U.S. budget and will equal about $100 billion next year if they go into effect.

And that’s where the fight starts.

The Pew Center on the States just released a study that shows the effects of the fiscal cliff on state budgets for both tax hikes and spending cuts.

To figure out how much of an affect federal spending cuts would have, it estimated how much federal spending on salaries, procurements and wages is as a percentage of each state budget (including Washington, D.C.).

To no one’s surprise, the three highest states by this measure were Washington D.C. (not a state, but still its own entity), Maryland and Virginia. These three combined have the federal government to thank for 19.7% of their GDP.

That’s right, almost one-in-five dollars of state GDP in these three states comes from the U.S. government. The reason that Maryland and Virginia are so high is because of the incredible number of commuters that live in these two states and work in D.C.

So as the U.S. government approaches that dangerous fiscal cliff and peers over, what the bureaucrats see is themselves… and it scares the heck out of them. If there are large scale cuts that hit all areas equally, as the law is written, then many of the paper-pushers will be out of a job.

That simply won’t do!

We certainly need budget cuts, but obviously not in their backyard!

Expect absolutely nothing to happen on this front.

The sequestered cuts will be pushed off or simply dropped, as bureaucrats and politicians protect each other.

What does it mean for the rest of us? That there must be more work done on higher taxes! That’s right, even higher than what is now contemplated. I hope you’re getting ready.

Rodney

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.