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A 2% Raise or a 10% Cut?

October 5, 2010

My household — which is to say the lovely wife and I with the dog’s reluctant agreement — decided that we need to have a laser focus on cutting or eliminating a specific piece of debt the family has.  One of the decisions that we made was that we weren’t going to wait for a raise from work (which have been small and infrequent for the last couple years) and instead cut our spending.  It personally hit the play money (joint and individual), the food budget, the overall discretionary spending… you name it, and we monitor it.  Some spending, of course, is tough to remove (like the debt payment), but we can keep that going and get the debt down faster, and that will remove the eventual need to pay.  See?  It’s magic, this economic decision-making!

Why do I mention this?  Because the always-enlightening Veronique de Rugy mentions something similar in this blog post, which points to her larger article in the American magazine.

I have a piece in the American magazine this morning comparing the “loss” in revenue from extending the tax cuts to government spending. This is particularly striking because I did what the president has been doing for weeks now and looked at the ten-year cost of government spending. Now let’s compare: The ten-year cost of extending the tax cuts is $3.7 trillion, the ten-year cost of extending the tax cuts for high income earners is $700 billion, and the ten-year cost of government spending is $41.9 trillion.

So the government is right now playing chicken with the economy for a ten year “raise” they hope to get via taxes.  In the mean time, they haven’t done anything other than jack spending through the roof, which will be 10x what they’ll bring in taxes — and that assumes that they’ll get their estimates, which almost never pan out.  Oh, and the debt they’ll pay over that time?  That’s about the same as the taxes they’ll supposedly collect.  So, in short, the government is hoping for a raise that will keep the debt payments funded, and all the while they’ll be tossing more on the credit cards.  I wonder if the government can get a Visa Platinum-plated Zinc-dipped Orange card that has a $100T limit?

Does anyone else see the hole here?  How ’bout instead we ask the government to shave that budget, which we could itimize and prioritize a bit (note, there are errors in the list, but it’s a good overview)?  Why does a common-sense solution for a house not make sense for the entire country?

I’m still a dumb engineer, but maybe all those smart economists are missing something.

Well maybe not all of them… I should have hit Hot Air before I posted this morning, because Ed has a link to refute my last statement.

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