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Executive Summary #1622 on Federal Budget

February 12, 2003

February 12, 2003 | Executive Summary on Federal Budget

Executive Summary: Ten Guidelines for Reducing Wasteful Government Spending

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Weary taxpayers are looking to President George W. Bush and Congress to reduce the tax burden and set a course toward a balanced budget. The President has already proposed a bold plan to reduce the high tax rates currently weighing down the economy, and an overhaul of the 44,000-page U.S. federal tax code may also be proposed. Lower tax rates will reduce barriers to working, saving, and investing, and therefore promote long-term economic growth.

Taxing Americans less also means that Washington must learn to spend less. Lawmakers courageously restrained spending in the mid-1990s but have since abandoned fiscal responsibility in favor of bloated budgets that assume there is no problem bigger government cannot solve. For example:

  • Washington will spend $782 billion more from 2000 to 2003 than it did between 1996 and 1999--an increase of $5,000 per household.
  • At more than $73,000 per household, 2000-2003 will become the highest-spending four-year period in American history, with the exception of World War II.
  • Contrary to popular opinion, new defense spending comprises just 21 percent of the $782 billion spending increase. Massive spending increases for farm subsidies, education, health research, unemployment benefits, and dozens of small, lower-priority programs are collectively adding more new spending than defense.
  • For the first time since the earliest days of the Great Society in the 1960s, discretionary spending is growing even faster than entitlement programs.
  • These record spending increases have taken place even though the government's net interest payments on the national debt in 2000-2003 will cost $247 billion less than they did between 1996 and 1999.

All government spending--even that financed by borrowing--must eventually be paid for with taxes. The real cost of government therefore is how much it spends, not how much it taxes. The lesson is clear: Over the long run, low taxes are possible only with low spending.

Tax reduction is not the only reason to take a fresh look at federal spending. Many government programs harm the economy because they centralize authority with politicians and bureaucrats in Washington at the expense of entrepreneurs and families. Non-deserving interests use government to secure benefits and perks that private individuals and businesses would not otherwise provide them.

Time to Be Bold
Congress's last serious attempt to reduce wasteful spending occurred in 1995 and 1996, when the 104th Congress terminated several programs whose irrelevance was proven by how quickly they were forgotten. But Congress then committed several strategic errors, such as overreaching and shutting down the federal government in 1995. After President Bill Clinton deftly exploited theses mistakes, budget cutters overreacted to Clinton's tactics by completely abandoning the mission of smaller government. Federal spending subsequently skyrocketed as a paralyzed Congress decided that budget confrontations with the Clinton White House could never be won and should be avoided at all costs.

In 2003, reducing wasteful spending is more important than ever. Defense, homeland security, and expensive entitlements are stretching the federal government thin while a high tax burden is weighing down the economy. Yet, although President Clinton is no longer in office and budget-cutting strategies have improved, Congress and (albeit to a lesser extent) President Bush still maintain a reflexive fear of attacking wasteful spending.

It is time to step back and think about the role of government, the obligations of the private sector, and the delineation between federal and state responsibilities. For those interested in lean, effective government with low taxes, here are 10 guidelines for reducing wasteful spending:

  1. Build a constituency for limited government and lower taxes.
  2. Turn local programs back to the states.
  3. Privatize activities that could be better performed by the private sector.
  4. Terminate irrelevant programs and reform wasteful programs.
  5. Terminate corporate welfare and other mistargeted programs.
  6. Consolidate duplicative and contradictory programs.
  7. Convert several remaining programs into vouchers.
  8. Terminate programs rather than trimming or phasing them out.
  9. Utilize the "ideas industry" for specific proposals.
  10. Remove procedural barriers to saving taxpayer dollars.

Difficult times present opportunities for leaders to chart a new course. During World War II, President Franklin Roosevelt reduced non-defense spending by 36 percent to save resources. Policymakers funded the Korean War by immediately reducing non-defense spending by 25 percent. Now, in 2003, defense, homeland security, and expanding entitlements are placing enormous demands on taxpayers and on the economy. Congress and the President should seize this opportunity to refocus the federal government on the programs that matter most. In the end, a government that attempts to do everything will do nothing well.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies