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Backgrounder #2483 on Budget and Spending

October 28, 2010

How to Cut $343 Billion from the Federal Budget

By

Abstract : Federal spending is on an unsustainable path that risks disaster for America. Runaway spending has increased annual federal budget deficits to unprecedented levels, adding $2.7 trillion to the national debt in the past two years alone. Each year’s huge federal deficit increases the mountain of national debt borrowed from future generations of Americans. Congress needs to cut federal spending sharply and quickly. This paper sets forth $343 billion in available spending cuts.

Over the past two years, Congress has added $2.7 trillion to the national debt, including a record $1.4 trillion deficit for fiscal year (FY) 2009 and a $1.3 trillion deficit for FY 2010.[1] If Congress does nothing and simply continues existing taxing and spending policies, federal deficits will grow, reaching a projected $2 trillion deficit in just 10 years—and even that assumes a return to peace and prosperity.[2]

America cannot live with such deficits interminably. Deficits mortgage the livelihoods of future generations of Americans and ultimately put U.S. economic growth, stability, and reliability at risk.

Soaring spending drives these dangerous deficits. By 2020, federal spending is set to soar to 26 percent of the gross domestic product (GDP), after having averaged 20 percent after World War II. Revenues will likely return to their post–World War II average of 18 percent of GDP by 2020, even if the 2001 and 2003 tax cuts are made permanent.[3] Thus, given current spending and taxing policies, spending is clearly the variable that drives up the deficits.[4] To reduce deficits, Congress must cut spending.

The costs of federal entitlement programs—Social Security, Medicare, and Medicaid—and interest on the national debt will drive future deficits, and Congress must promptly and carefully decide how best to reduce those costs. However, entitlement reforms will take time, and spending cuts cannot wait. Congress needs to start cutting spending now.

Table 1 sets forth $343 billion in available spending cuts for the new Congress to consider when it takes up the federal budget for FY 2012. Many of the cuts fall into six areas:

  • Empowering state and local governments. Congress should focus the federal government on performing a few duties well and allow the state and local governments, which are closer to the people, to creatively address local needs in areas such as transportation, justice, job training, and economic development.
  • Consolidating duplicative programs. Past Congresses have repeatedly piled duplicative programs on top of preexisting programs, increasing administrative costs and creating a bureaucratic maze that confuses people seeking assistance.
  • Privatization. Many current government functions could be performed more efficiently by the private sector.
  • Targeting programs more precisely. Corporate welfare programs benefit those who do not need assistance in the American free enterprise system. Other programs often fail to enforce their own eligibility requirements.
  • Eliminating outdated and ineffective programs. Congress often allows the federal government to run the same programs for decades, despite many studies showing their ineffectiveness.
  • Eliminating waste, fraud, and abuse. Taxpayers will never trust the federal government to reform major entitlements if they believe that the savings will go toward “bridges to nowhere,” vacant government buildings, and Grateful Dead archives.[5]

Table 1: Spending Cuts for FY 2012

(in millions of dollars)

Agriculture

$15,000

Replace farm subsidies with Farmer Savings Accounts and improved crop insurance.

$2,033

Eliminate the Foreign Agriculture Service.

$1,500

Merge all four agriculture outreach and research agencies and cut their budget in half.

$1,000

Fund the Food Safety and Inspection Service with user fees.

Commerce

$500

Eliminate business subsidies from the National Institute of Standards and Technology.

Community Development

$6,000

Eliminate the Community Development Block Grant program.

$598

Eliminate the Rural Utilities Service.

$523

Eliminate the Economic Development Administration.

$480

Eliminate NeighborWorks America (formerly the Neighborhood Reinvestment Corporation).

$200

Consolidate the Rural Housing and Development Programs and convert them into block grants.

$73

Eliminate the Appalachian Regional Commission.

$48

Eliminate the Denali Commission.

$31

Eliminate the Minority Development Business Agency.

$8

Eliminate the Delta Regional Authority.

Education

$8,000

Return Pell Grants to their 2009 funding level of $24 billion, which is still double the 2007 level.

$2,000

Trim Head Start by $2 billion and convert it into vouchers.

$2,000

Scale back the Education Department bureaucracy.

$1,500

Eliminate dozens of small and duplicative education grants.

$298

Eliminate state grants for Safe and Drug-Free Schools and Communities.

Energy and the Environment

$6,500

Reduce energy subsidies for commercialization and some research activities.

$600

Block grant and devolve Environmental Protection Agency grant programs.

$200

Restructure the Power Marketing Administrations to charge market-based rates.

$63

Eliminate the Science to Achieve Results Program.

Government Reform

$44,000

Halve federal program payment errors by 2012, especially by reducing Medicare errors and earned income tax credit errors.
Tighten oversight by spending $5 billion on new resources, such as updated computer systems, and then recover $49 billion in payment errors.

$20,000

Rescind unobligated balances after 36 months.

$12,500

Halve the $25 billion spent to maintain vacant federal properties.

$10,000

Cut the federal employee travel budget to $4 billion (half of FY 2000 spending).

$3,000

Freeze federal pay until it can be reformed.

$1,000

Suspend acquisition of federal office space.

$600

Trim the federal vehicle fleet by 20 percent (a reduction of 100,000 vehicles).

$300

Cut the House and Senate budgets back to the 2008 level of $2.2 billion.

$215

Eliminate the Presidential Election Campaign Fund.

$100

Tighten controls on federal employee credit cards and cut down on delinquencies.

$70

Require federal employees to fly coach on domestic flights.

Health Care

$6,200

Reform Medigap.

$5,000

Repeal Obamacare (larger savings in later years).

$3,700

Require Medicare home health co-payments.

$673

Eliminate the Maternal and Child Health Block Grant.

$414

Eliminate Health Professions grants.

$327

Eliminate Title X Family Planning.

$150

Eliminate the National Health Service Corps.

$98

Repeal Rural Health Outreach and Flexibility grants.

Homeland Security

$2,700

Eliminate most homeland security grants to states and allow states to finance their own programs.

Income Security

$500

Better enforce eligibility requirements for food stamps.

Interior



$1,500

Open the coastal plain of the Arctic National Wildlife Refuge to leasing.
(The savings are leasing revenues, which are classified as negative spending in the federal budget.)

$200

Suspend federal land purchases.

International

$2,636

Eliminate the Development Assistance Program.

$625

Eliminate the State Department’s education and cultural exchange programs.

$321

Eliminate the International Trade Administration’s trade promotion activities or charge the beneficiaries.

$183

Eliminate the Democracy Fund.

$68

Eliminate the International Trade Commission and transfer oversight of intellectual property rights to the Treasury Department.

$56

Eliminate the Trade and Development Agency.

$29

Eliminate the Overseas Private Investment Corporation.

$19

Eliminate the East–West Center.

$17

Eliminate the United States Institute of Peace.

$2

Eliminate the Japan–United States Friendship Commission.

Justice

$7,334

Eliminate all Justice Department grants except those from the Bureau of Justice Statistics and the National Institute of Justice,
thereby empowering states to finance their own justice programs.

$398

Eliminate the Legal Services Corporation.

$32

Eliminate the Justice Department’s Community Relations Service.

$30

Eliminate the duplicative Office of National Drug Control Policy.

$26

Reduce funding for the Justice Department’s Civil Rights Division by 20 percent
because of its policy against race-neutral enforcement of the law.

$4

Eliminate the State Justice Institute.

Labor



$4,300

Eliminate failed federal job training programs.

$2,000

Eliminate the ineffective Job Corps.

$576

Eliminate the Senior Community Service Employment Program.

National Science Foundation

$1,700

Reduce National Science Foundation funding to 2008 levels.

$86

Eliminate National Science Foundation spending on elementary and secondary education.

Transportation

$45,000

Devolve the federal highway program and most transit spending to the states.

$1,900

Privatize Amtrak.

$1,009

Eliminate grants to large and medium-sized hub airports.

$554

Eliminate the Maritime Administration.

$125

Eliminate the Essential Air Service Program.

Treasury

$26,646

Eliminate the additional child refundable credit.

$103

Eliminate the Community Development Financial Institutions Fund.

Veterans

$2,500

Cap increases in Department of Veterans Affairs health care spending.

$1,930

Reduce Veterans’ Disability Compensation to account for Social Security Disability Insurance payments.

Cross-Agency and Other

$60,000

Repeal unspent stimulus spending.

$8,000

Switch to using the “Superlative CPI” in funding calculations.

$6,000

Repeal the Davis–Bacon Act.

$2,250

Eliminate Federal Communications Commission funding for school Internet service.

$2,000

Ban project labor agreements on all federally funded construction projects.

$1,000

Eliminate the Small Business Administration, which unnecessarily intervenes in free markets.

$736

Eliminate the National Community Service programs, such as AmeriCorps.

$253

Eliminate the Institute of Museum Services and Library Services.

$140

Eliminate the National Endowment for the Humanities.

$133

Eliminate the National Endowment for the Arts.

$61

Eliminate Army Corps of Engineers funding for beach replenishment projects.

$10

Eliminate the Commission of Fine Arts.

$8

Eliminate the National Capital Planning Commission.

$5

Eliminate the Advisory Council on Historic Preservation.

Total

$343,207 million

Implementing the $343 billion in recommended cuts listed in Table 1 would reduce the deficit by somewhat less than $343 billion because some recommendations would also reduce tax revenues. For example, devolving the federal highway program to states would also mean devolving the gas tax, and repealing the Patient Protection and Affordable Care Act (Obamacare)[6] would repeal its tax increases.

Conclusion

Almost all of the proposed cuts in federal spending will provoke strong objections from constituencies that benefit from having Members of Congress give them taxpayer money taken from someone else. Yet the difficulties caused by each of these cuts should be measured against the status quo option of doubling the national debt over the next decade, risking an economic crisis, and drowning future generations in taxes.

Governing involves difficult choices, and Congress simply cannot continue to court long-term disaster for all merely to avoid short-term difficulties for some.

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

Appendix

Additional Reading on Spending Recommendations

1. Congressional Budget Office, Budget Options, Vol. 1, Health Care, December 2008, at http://www.cbo.gov/doc.cfm?index=9925 (October 19, 2010).

2. Congressional Budget Office, Budget Options, Vol. 2, August 2009, at http://www.cbo.gov/doc.cfm?index=10294 (October 19, 2010).

3. Brian M. Riedl, “50 Examples of Government Waste,” Heritage Foundation WebMemo No. 2642, October 6, 2009, at http://www.heritage.org/Research/Reports/2009/10/50-Examples-of-Government-Waste.

4. Republican Study Committee, “A Balanced Budget for America,” May 2010, at http://rsc.tomprice.house.gov/UploadedFiles/RSC_FY11_BUDGET_BOOKLET—FINAL.pdf (October 19, 2010).

5. Paul Weinstein Jr. and Katie McMinn Campbell, “Return to Fiscal Responsibility II,” Progressive Policy Institute Policy Report, April 2007, at http://www.ppionline.org/documents/Fiscal_Responsibility_04302007.pdf (October 19, 2010).

6. Scott A. Hodge, ed., Balancing America’s Budget (Washington, D.C.: The Heritage Foundation, 1997).

7. Brian M. Riedl, “How to Get Federal Spending Under Control,” Heritage Foundation Backgrounder No. 1733, March 10, 2004, at http://www.heritage.org/Research/Reports/2004/03/How-to-Get-Federal-Spending-Under-Control.

8. David B. Muhlhausen, “Why Would COPS 2.0 Succeed When COPS 1.0 Failed?” Heritage Foundation WebMemo No. 1903, April 28, 2008, at http://www.heritage.org/Research/Reports/2008/04/Why-Would-COPS-20-Succeed-When-COPS-10-Failed.

9. David B. Muhlhausen, “Congress Spends Billions on Ineffective Job-Training Programs,” Heritage Foundation Backgrounder No. 1597, October 1, 2002, at http://www.heritage.org/Research/Reports/2002/10/Congress-Spends-Billions-on-Ineffective-Job-Training-Programs.

10. Robert E. Moffit, “The Prospects for Ending Obamacare: Learning from Health Policy History,” Heritage Foundation Backgrounder No. 2424, June 21, 2010, at http://www.heritage.org/Research/Reports/2010/06/The-Prospects-for-Ending-Obamacare-Learning-from-Health-Policy-History.

11. Matt A. Mayer, “An Analysis of Federal, State, and Local Homeland Security Budgets,” Heritage Foundation Center for Data Analysis Report No. CDA09–01, March 9, 2009, at http://www.heritage.org/Research/Reports/2009/03/An-Analysis-of-Federal-State-and-Local-Homeland-Security-Budgets.

12. Ronald Utt, “Will a Bigger Role for States Improve Transportation Policy Performance?” in Wendell Cox, Alan Pisarski, and Ronald D. Utt, eds., 21st Century Highways (Washington, D.C.: The Heritage Foundation, 2005).

Show references in this report

[1]U.S. Department of the Treasury, “Final Monthly Treasury Statement of Receipts and Outlays of the United States Government: For Fiscal Year 2010 Through September 30, 2010, and Other Periods,” October 2010, at http://www.fms.treas.gov/mts/mts0910.pdf (October 27, 2010). Each year’s deficits are a record in nominal dollars and higher than any year since World War II as a share of the economy.

[2]See Brian M. Riedl, “The Three Biggest Myths About Tax Cuts and the Budget Deficit,” Heritage Foundation Backgrounder No. 2423, June 21, 2010, at http://www.heritage.org/Research/Reports/2010/06/The-Three-Biggest-Myths-About-Tax-Cuts-and-the-Budget-Deficit. Absent a return to peace and prosperity, the projected deficit for FY 2020 would be higher. The deficits for FY 2009 and FY 2010 reflect the net result of increased federal spending, including war costs, and decreased federal revenues, including decreases due to reduced national economic activity.

[3]See Riedl, “The Three Biggest Myths About Tax Cuts and the Budget Deficit.”

[4]Cuts to spending will not harm economic recovery. Harvard economist Alberto Alesina recently showed that any effects of government spending would actually reduce economic growth. Alberto Alesina and Silvia Ardagna, “Large Changes in Fiscal Policy: Taxes Versus Spending,” revised October 2009, at http://www.economics.harvard.edu/faculty/alesina/files/Large%2Bchanges%2Bin%2Bfiscal%2Bpolicy_October_2009.pdf (October 27, 2010). See also Daniel J. Mitchell, “The Impact of Government Spending on Economic Growth,” Heritage Foundation Backgrounder No. 1831, March 15, 2005, at http://www.heritage.org/research/budget/bg1831.cfm, and Brian M. Riedl, “Why Government Spending Does Not Stimulate Economic Growth: Answering the Critics,” Heritage Foundation Backgrounder No. 2354, January 5, 2010, at http://www.heritage.org/Research/Economy/bg2354.cfm.

[5] Brian M. Riedl, “50 Examples of Government Waste,” Heritage Foundation WebMemo No. 2642, October 6, 2009, at http://www.heritage.org/Research/Budget/wm2642.cfm.

[6]Public Law 111–148, as amended by Public Law 111–152.

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