Baseline Budgeting: The Perfect Tax and Spend Formula

Article first published as Baseline Budgeting: The Perfect Tax and Spend Formula on Technorati.

Standards & Poor’s (S & P) downgrade of US debt could be the disguised blessing the US economy needs. Truly, I do not understand why other debt rating agencies did not lower their ratings, too. A casual look at the facts shows clearly that the final agreement to hike the debt ceiling will continue spending and debt increases.

This downgrade is not about America’s ability to pay in the near term. Instead, it is about responsible fiscal management that government needs to start today.

Will Americans pressure Congress to abandon the ridiculous, debt generating, baseline budgeting idea, and start working to lower spending? Alternatively, will they allow the media and others to manipulate them to think the Tea Party caused the downgrade?

Tea Party Republicans get it. They know when you compare projected spending with an earlier budget (baseline) for the same period, there is no savings. You cannot claim savings just because the later budget shows less planned spending. How can you? Both are estimates! Moreover, the baseline is inflated, to boot.

In my 32 years in business, we had to cut programs to lower expenses, regularly. Nobody, not even one person in our organization, would believe you could claim lowered spending by comparing two estimates: the current estimate, with a previous budget (baseline). We knew estimating reduced future costs does nothing to save a cent. We save when we set aside funds in a separate account. We don’t save when we spend less.  If the budget shows less estimated future spending than today’s spending, that means nothing. We can’t claim we saved!

Baseline Budgeting Promotes Waste

Let’s look more closely at this  bizarre budgeting approach. The Congressional Budget Office (CBO) defines the baseline as “A benchmark for measuring the budgetary effects of proposed changes in federal revenues or spending.”

The baseline assumes today’s budget policies, or services continue unchanged. Besides, it includes automatic adjustments for inflation and anticipated increases in program participation. Notice, these important assumptions:

1. Current policies will continue–no change to the present state.
2. Inflation and increase in program participation will be in the baseline–costs will keep rising.
3. A budget less than this inflated budget will yield “a budget cut”–and the public buys this trick.

Baseline budgeting is a tax-and-spend-politician’s dream. It is an asinine and sinister way to appear to handle finances responsibly. It is akin to the three-card monte, with the public as “sucker.”

Baseline budgeting is gobbledygook! How do they get away with this voodoo accounting practice? The debt ceiling deal will not produce budget cuts. None! Social Security will continue to grow. So, too, will Medicare and all approved programs.

Baseline budgeting enables spending to grow and debt to rise. Sadly, it will cause America’s world standing to decline. That’s why S & P is right on with the downgrade!

Though Congress’ performance was pitiful, the three-card monte deal did not change the reality that US public debt is out of control.

If Congress does not address this silly baseline budget approach, communist China will continue to scold the US for out of control spending. Soon the US dollar will become unacceptable as an international currency. Already, many countries are talking about alternatives.

Wake up, America, be thankful S & P downgraded your public debt! Seize this moment and do not allow politicians or others to deflect from the real issue of out of control spending.

The Tea Party has done a great service to highlight this idiotic baseline budgeting approach. Congress needs to adopt a zero-base budget approach and build budgets from scratch. They must decide future needs and then estimate their costs. They need to stop extrapolating the present with all its problems.

Are politicians ready to be accountable with proper budgeting practices?

© 2011, Michel A. Bell