Budget Cave-In

Rep. Paul Ryan and Sen. Patty Murray have announced a budget “compromise” that will roll back a portion of the sequester in exchange for phantom future cuts.

This budget is a mistake as Cato’s Chris Edwards points out here:

Republican and Democratic negotiators are expected to agree to a budget deal this week setting spending levels for 2014. The Washington Post says that the deal will amount to “little more than a cease-fire.”

However, the deal being described in media reports would be much worse than a cease-fire for Republicans, at least for fiscally conservative Republicans. That’s because the Budget Control Act of 2011 and related sequester have started bearing fruit and are currently providing substantial discretionary spending control. Yet Republican leaders are apparently planning to throw it away in return for revenue increases and paltry spending trims.

In theory, Republicans have the upper hand in budget talks because current law specifies that discretionary spending will be modestly reduced in 2014 to $967 billion. Republicans always claim that they are for spending restraint, and here they just need to hold firm on current-law budget caps to save serious money over time.

However, the Post story indicates that the GOP may agree to scrap the budget cap for 2014 and spend up to $1.015 billion in return for a tiny cut to federal pensions and a revenue increase, possibly from auctioning radio spectrum.

That would be a giant cave-in because a precedent will have been set. The next decade of savings from current-law budget caps would be in jeopardy. If Republican leaders up-end the budget caps this year, they will empower big-spending Democrats, liberal Republicans, and appropriators to completely blow up the caps in later years.

A $48 billion cap overrun this year could set the stage for spending hundreds of billions of dollars more over the coming decade. That would be snatching defeat from the jaws of 2011’s modest budget victory.

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.

E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.