I just love Washington-speak which offers heartfelt phrases such as “baseline spending,” “debt ceiling,” “drop dead dates,” and my ultimate favorites, “the cut,” “to cut,” “a cut,” or just simply “cuts.”
Like the phrase “beauty is in the eye of the beholder,” a “cut” means different things to different people.
Let me explain by first discussing common-speak, which is very easy to understand.
When someone takes a cut in pay, it could mean going from $20 per hour to $15 per hour. Or, they’re paid $30,000 per year for a job that used to pay $35,000 per year.
To most Americans, it also means reducing the amount of groceries purchased with the same cash outlay as before.
These are real cuts.
Simply put, a reduction in what was spent, or earned, the year before. A cut is easily understood and accepted by all until it gets to the Beltway, and then it becomes Washington-speak.
How does this happen?
Here’s an example. Cut a credit card into little pieces. The action in and of itself doesn’t have a financial effect, but it does stop you from using the card again.
Thus, you haven’t done anything to reduce credit card debt, other than stopping you from increasing it.
No card, no spending, no increased debt.
So we’ve cut the card, but not the debt.
However, now you can proclaim that you’ve indeed made “cuts.”
Get the idea?
Here’s another example, my neighbor’s wife.
An avid shopper, one day she exclaimed to my neighbor “Gee, honey, I think you’ll be really happy, I saved you $200.”
“My favorite dress shop had a sale and the dress I purchased was reduced from $700 to $500.”
Therefore, her idea of taking $500 out of my neighbor’s pocket, instead of $700 (resulting in a $200 savings), was a “cut in planned spending.”
Yes, Washington-speak once again. You get the point.
The argument regarding budget cutting is not about actually freezing spending at a certain level and then reducing from there.
Rather, it’s about slowing down the rate of growth and calling it a budget cut. For years, the bureaucrats knew that in order to maintain their budgets, they must spend everything allocated.
If they didn’t, they would have to take the proverbial cut the next year.
Along with his 40-years of dedication in the financial services industry, Bill is the President and CEO of GPSforLife, has recently authored a highly successful book entitled 44th: A Presidential Conspiracy, publishes his dynamic monthly financial newsletter MacroProfit, and faithfully continues his third decade on the radio with It’s All About Money, which can be heard weekdays on Money Radio in Phoenix and in podcast form on his website (and on smartphone apps) published at billtatro.com weekdays at 5pm Eastern. Bill can be reached via email at firstname.lastname@example.org and on Twitter @tatroshow.