April 9, 2003

April 9, 2003 | WebMemo on Federal Budget

A Modest Proposal: How to Offset More than Half of the President's Tax Cut

The federal government is projected to collect $27.9 trillion in taxes over the next ten years. President Bush has proposed a $726 billion tax relief package that would drop that total to "only" $27.2 trillion. While that amount seems sufficient to satisfy Washington's spending appetite, a group of Senators is opposing any tax cut larger than $350 billion. These Senators have described all proposals that would tax less than $27.6 trillion over the next decade as "unaffordable."

Some of those Senators argue that painful budget deficits and economic hardships await Washington if it fails to collect the extra $400 billion. Budget deficits, however, depend as much on government spending as they do on revenues.

Increasing the tax cut from $350 billion back up to the $726 billion level passed by the House of Representatives would not increase the budget deficit if spending restraint offsets the additional tax relief. Offsetting the rest of the tax cut would require that Congress cut just $376 billion out of the $27 trillion (or 1.4 percent) they are scheduled to spend over the next decade. Eliminating the following wasteful spending could do that:


PROPOSAL[1]

Savings in $millions

2004

2004-2013

Eliminate federal spending that the U.S. Treasury's auditors cannot even account for; known as "unreconciled transactions"

$17,100

$171,000

Fix Medicare payment errors

12,100

121,000

Fix housing payment errors

3,300

33,000

Fix other payment errors identified by OMB

2,500

25,000

Fix food stamp payment errors

1,300

13,000

Drop the wealthiest communities from Community Development Block Grants

12

5,332

Consolidate the Defense Department's retail and grocery stores into a single chain

231

5,081

End Amtrak subsidies for the most unprofitable routes

278

3,241

Exclude repeatedly-flooded properties from federal flood insurance bailouts

0

2,481

Consolidate and encourage efficiencies in military exchanges

53

1,745

Merge Defense Department and Veterans' Affairs drug purchases

38

1,732

Limit annual fixed and countercyclical farm subsidy payments to a combined $75,000 per person

156

1,654

Merge many of the veterans' facilities with low demand

0

1,642

Sell the Southeastern Power Administration

0

1,060

Total:

37,068

386,968





 

 

 

 

 

 

 

 

 

 

 

 

 

 The $387 billion saved would be enough to expand the tax package to the House-passed level of $726 billion, plus an additional $11 billion for any contingencies. But why stop there? Congress could set aside an additional $100 billion for pro-growth tax relief by enacting the following proposals.

PROPOSAL

Savings in $millions

2004

2004-2013

Improve and modernize the CPI to better reflect true inflation

$3,000

$30,000

Repeal the Davis-Bacon and Service Contract Acts

1,100

20,000

Defund the "New Starts" transit program

239 13,628

Defund "High-Priority" highway projects

190 13,044

Close down the Small Business Administration

1,000 10,000

Eliminate the Export-Income Bank, OPIC, and the Trade and Development Agency

72 5,307

Privatize the Institute of Museum Services & Library Services

133 2,600

Eliminate the Advanced Technology Program

24 1,705

Eliminate the Market Access Program

6 1,635

Eliminate the Neighborhood Reinvestment Corporation

107 1,177

Eliminate the Manufacturing Extension Partnerships

17 1,073

Eliminate the Foreign Market Development Program

24 335

Total:

5,912 100,504












 

 

 

 

 

 

 

 

 

 

 

 

 

It is important to remember that the revenue loss from the President's tax proposal will likely be much less than the $726 billion static estimate. Increased economic growth will likely recover anywhere from 25 to 60 percent of the revenue loss. If Congress still insists on projecting a $726 billion revenue loss, and offsetting all costs beyond $350 billion, the opportunities for spending offsets are numerous. All that is needed is the will to act.

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

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[1] Further details on these and many more budget recommendations can be found at Brian M. Riedl, "Ten Guidelines for Reducing Wasteful Government Spending," Heritage Foundation Backgrounder No. 1622, February 12, 2003, at www.heritage.org/Research/Budget/BG1622.cfm.