Common Cents for October 28th 2012

By now, you have probably heard something about the so-called ‘fiscal cliff,’ which we are due to fall off on January 1, 2013. Simply put, taxes are set to increase, and mandatory government spending cuts are due to take hold. Oh, the humanity!

Not surprisingly, a lot of people are worried about the economic impact of this fiscal cliff, with some of the more hyperbolic among us forecasting rack & ruin. However, we need to question just what role we really, really want the government to play in our lives.

You see, an enormous amount of Federal spending is through what we call ‘transfer payments.’ This is when the government takes your money and gives it to someone else through some sort of entitlement program, pension, or salary. Okay, maybe the pensions and salaries aren’t technically transfer payments by definition, but they have essentially the same effect. Your taxes going to provide some measure of income and/or assistance to someone else.

These types of transfers of money have constituted an enormous portion of the Federal budget deficit since 2008. For instance, in 2008, total Federal outlays were $2,983 billion. In 2011, they were $3,599 billion, for an increase of $616.billion. That is a significant sum of money, isn’t it? However, during that time, purchases by the Federal government have only gone up $164 billion, and non-mandatory spending by a meager $23 billion. As such, the increase in mandatory spending & entitlements programs has been $453 billion, or roughly 70% of the total. Read On…