Does this simple two-word phrase give you the heebie jeebies? You're not alone. For most Americans, the only thing we hate worse than doing our taxes is being drawn into a discussion of the minutae of the Federal Budget. It's intimidating to consider the budget in part because there are so many numbers being bandied around out there, with many of them seemingly in contradiction to one another.
A topic about understanding the national budget deserves an entire suite to itself, so I won't even attempt a comprehensive discussion. Rather, I'll focus on a simple but important question many people have been asking lately:
When is a budget cut really a cut, and when is an budget increase really an increase?
The answer to this question is more complicated than you might think, and illuminates some important aspects of the current budget debate.
The simplest, most literal answer to the above question is that an increase occurs when more money is spent, while a cut occurs when less money is spent.
Unfortunately, this simple, literal answer is also misleading. As most of us learned in high school economics class, inflation constantly decreases the spending power of a dollar. By the end of the year 2000, for instance, it took 3.1% more money than at the beginning of the year 2000 to buy a typical product. In jargon, the inflation rate for the year 2000 was 3.1%. If we assume that next year's inflation rate will be the same, the upcoming federal budget will have to be 3.1% larger just to be able to purchase the same products and services as in the previous year.
But wait, there's more! More people, that is. That's right, the U.S. population is constantly growing. This being a G-rated article, I won't describe how (actually, some of that increase has to do with immigration, too). But Census figures show that in 1999 the U.S. population grew by 0.9%. So if we continue to grow at that rate, (assuming for simplicity's sake that these new folks cost about the same as the old folks) we need to add on an additional 0.9% to the budget each year just to keep up the average level of service provision per person.
In short, in order to provide the same level of service as in the previous year, the budget must increase by 4%. That, by the way, is just about exactly the amount that the Bush administration plans to "increase" the size of the budget by. Is that a budget increase? In nominal terms, yes. Keeping in mind inflation and population growth, no. Which of these answers is more "real" depends on your orientation to reality.
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