March 14, 2003

March 14, 2003 | News Releases on Federal Budget

Heritage Analyst: Congress Can Cut Taxes AND Balance the Budget - By 2008

WASHINGTON, MARCH 13, 2003-House members say they can pass a tax cut totaling $1.6 trillion over the next decade and balance the budget by 2010-though their plan omits the cost of a war with Iraq. But a new paper from The Heritage Foundation shows how Congress can balance the budget two years sooner-while funding a war with Iraq and creating a Medicare drug benefit-if members are willing to curb runaway spending.

"Restraining government is never easy, but it can be done," says Brian Riedl, Heritage's Hermann fellow in federal budgetary affairs. Congress would have to do two things:

  • Limit the growth of "mandatory" spending-that is, what lawmakers devote to programs such as Social Security and Medicare-to 4.6 percent annually instead of 5.6 percent.
  • Freeze non-defense "discretionary" spending-the funds Congress can allocate at will-at the 2003 level of $418 billion.

Slowing the growth of government is completely feasible, Riedl says, because mandatory spending includes tens of billions of dollars in waste and overpayments in programs such as Medicare, food stamps and student loans. "In addition, billions are spent on well-intentioned but failed programs such as farm subsidies, mass transit assistance and public works," he says. "If lawmakers truly want to balance the budget, they certainly could cut the growth in spending by 1 percent."

Riedl also notes that non-defense discretionary spending, meanwhile, has grown 41 percent since 1999-including massive increases not only for education and health research, but also for corporate welfare, pork-barrel projects and dozens of small, lower-priority programs such as the Power Marketing Administration and the Foreign Agriculture Service. Surely these programs can afford to wait a few more years before getting an additional spending increase, the Heritage analyst says.

Such spending cuts alone, however, won't balance the budget. They must be combined with the president's proposed tax cuts, which-by creating jobs and boosting incomes across the nation-will recover a substantial portion of the lost federal revenue, Riedl says. "We've seen it again and again," he says. "When you cut taxes, you create more economic activity. People have more money to save, spend and invest. That gives the economy a much-needed lift."

Some lawmakers, hoping to avoid painful budget cuts, express hope that a strong economic recovery alone will balance the budget. "They point to the 8.4 percent annual revenue increases that occurred from 1993 to 2000 and think it can happen again," Riedl says. "Even if it could, they forget that spending then was being held to an annual growth rate of 3.5 percent. Now it's growing at almost 8 percent." There's no alternative, he says: Spending must be cut.

"Of course, Congress could always wait until the deficit grows even larger-and then see what painful budget decisions really look like," Riedl says.

More information can be found online at Heritage's "Reality Check" on taxes at: www.heritage.org/research/taxes/taxbriefingroom.cfm.

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