October 28, 2010

October 28, 2010 | Backgrounder on Budget and Spending

How to Cut $343 Billion from the Federal Budget

Key Points

  1. Federal spending is out of control, putting America on a path that invites economic disaster.
  2. Skyrocketing federal spending has contributed to budget deficits of $1.4 trillion for FY 2009 and $1.3 trillion for FY 2010. Projected spending is expected to push the annual deficit to nearly $2 trillion by 2020.
  3. Soaring spending, not tax cuts or the lack of revenue, is driving these long-term deficits. Revenues are set to rebound to their historical average, yet spending is set to rise by 6 percent of GDP above its historical average by the end of the decade.
  4. Federal entitlement programs—Social Security, Medicare, and Medicaid—and interest on the national debt will drive future deficits. To control spending, Congress must promptly and carefully decide how best to reduce entitlement costs.
  5. Yet entitlement reforms will take time. To reduce the federal deficit, Congress must start with major cuts to spending now.

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)



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


Eliminate the Foreign Agriculture Service.


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


Fund the Food Safety and Inspection Service with user fees.



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

Community Development


Eliminate the Community Development Block Grant program.


Eliminate the Rural Utilities Service.


Eliminate the Economic Development Administration.


Eliminate NeighborWorks America (formerly the Neighborhood Reinvestment Corporation).


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


Eliminate the Appalachian Regional Commission.


Eliminate the Denali Commission.


Eliminate the Minority Development Business Agency.


Eliminate the Delta Regional Authority.



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


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


Scale back the Education Department bureaucracy.


Eliminate dozens of small and duplicative education grants.


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

Energy and the Environment


Reduce energy subsidies for commercialization and some research activities.


Block grant and devolve Environmental Protection Agency grant programs.


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


Eliminate the Science to Achieve Results Program.

Government Reform


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.


Rescind unobligated balances after 36 months.


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


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


Freeze federal pay until it can be reformed.


Suspend acquisition of federal office space.


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


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


Eliminate the Presidential Election Campaign Fund.


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


Require federal employees to fly coach on domestic flights.

Health Care


Reform Medigap.


Repeal Obamacare (larger savings in later years).


Require Medicare home health co-payments.


Eliminate the Maternal and Child Health Block Grant.


Eliminate Health Professions grants.


Eliminate Title X Family Planning.


Eliminate the National Health Service Corps.


Repeal Rural Health Outreach and Flexibility grants.

Homeland Security


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

Income Security


Better enforce eligibility requirements for food stamps.



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.)


Suspend federal land purchases.



Eliminate the Development Assistance Program.


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


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


Eliminate the Democracy Fund.


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


Eliminate the Trade and Development Agency.


Eliminate the Overseas Private Investment Corporation.


Eliminate the East–West Center.


Eliminate the United States Institute of Peace.


Eliminate the Japan–United States Friendship Commission.



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.


Eliminate the Legal Services Corporation.


Eliminate the Justice Department’s Community Relations Service.


Eliminate the duplicative Office of National Drug Control Policy.


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


Eliminate the State Justice Institute.



Eliminate failed federal job training programs.


Eliminate the ineffective Job Corps.


Eliminate the Senior Community Service Employment Program.

National Science Foundation


Reduce National Science Foundation funding to 2008 levels.


Eliminate National Science Foundation spending on elementary and secondary education.



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


Privatize Amtrak.


Eliminate grants to large and medium-sized hub airports.


Eliminate the Maritime Administration.


Eliminate the Essential Air Service Program.



Eliminate the additional child refundable credit.


Eliminate the Community Development Financial Institutions Fund.



Cap increases in Department of Veterans Affairs health care spending.


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

Cross-Agency and Other


Repeal unspent stimulus spending.


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


Repeal the Davis–Bacon Act.


Eliminate Federal Communications Commission funding for school Internet service.


Ban project labor agreements on all federally funded construction projects.


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


Eliminate the National Community Service programs, such as AmeriCorps.


Eliminate the Institute of Museum Services and Library Services.


Eliminate the National Endowment for the Humanities.


Eliminate the National Endowment for the Arts.


Eliminate Army Corps of Engineers funding for beach replenishment projects.


Eliminate the Commission of Fine Arts.


Eliminate the National Capital Planning Commission.


Eliminate the Advisory Council on Historic Preservation.


$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.


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.


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).

About the Author

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

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.