Government's Definition of Spending Cuts

For financial amusement, I've been following the drama on the fiscal cliff and sequestration negotiations.  I have learned amazingly that the governments definition of spending cuts is very different that my definition for individuals.  To me, a personal spending cut is making a conscious decision on what to give up to reduce costs.  For example, I may choose to buy less or to buy a less expensive brand of a product.  In most cases, I need to give up something: amount, quality, or value.

However, I have learned that the government has several more options for "spending cuts:"

1. Pay the provider less for the same product.  The proposed 2% cut in Medicare is to simply have health care providers accept 2% for the exact same services and products.  The providers only choice is to participate or be excluded from Medicare.    Gee, I wish I could tell my grocery store or gas station to accept 2% less and have them participate.  Unfortunately, they will choose not to do business with me anymore.
2. Future promised cuts that usually don't materialize.   A typical government tactic is to claim a savings credit today for spending cuts in the future, even they don't materialize, which they usually don't.  For me, that would mean I could claim a spending cut of $25,000 in 2012 if I delay purchasing a car from 2014 to 2015.
3. Postponing benefits.  Another government spending cut is to delay benefits for entitlements, such as Social Security.  So raising the age for full retirement is considered a spending cut for the government.  I guess this works because starting later means less payments over the programs lifetime, but I don't see how it should be claimed as a current savings.  For example, if I take a major vacation every five years starting at 55 and decide to delay the start until 60, I will take one less major vacation over my lifetime.  But I shouldn't claim a spending cut in the year I decide to delay.

This year I probably saved a few hundred dollars in spending cuts.  However, if I used the government definition, I would claimed tens of thousands in spending cuts since I didn't buy a new car, delayed taking major vacation, and assumed all my providers would accept 2% less for the same products and services.

For more on  New Realities, check back every Sunday for a new segment.

This is not financial or frugal living advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC