A $130 Billion No-Tax Prescription for the Budget Deficit

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A $130 Billion No-Tax Prescription for the Budget Deficit

May 30, 1990 35 min read Download Report
Scott A.

(Archived document, may contain errors)

May31,1990 A $l30 BWON NGTAX PREscRIpllON FORTRE BUDGET DEZTU'I George Bush and congressional leader s are engaged in negotiations to deal with the federal budget deficit, which is descriied by many policy mak ers as a "crisis" that threatens the health of the national economy. Many members of Congress are urging the Resident to "show leadership" by rais ing taxes. And Bush has announced that he might be willing to forsake his most solemn political pledge, to abandon his "no new taxes promise."

Behind calls for new taxes are the assumptions that the federal budget al ready has been cut to the e bones that every program is running as effi ciently as possiile, and that every program senres vital national goals that can not be accomplished by state and local governments or by the private sector.

These assumptions are false.In hct, Heritage Foundation analysts have iden tified over $130 billion in spending cuts and budget savings that could be made without harming programs comprising the social "safety net."

Wasteful or unneeded spending in the budget is the real cause of the defi cit. Before the President an d Congress take one more dollar from Americans who are now paying record high levels of taxes, they must put every federal program on the table for critical review.

Ignoring Billions in Cuts. There isindeed a need for leadership on the problem of the budg et deficit.The Bush Administration has failed even to go through the motions of requesting cuts or elimination of dozens of programs that aid only special interest groups or government bureaucrats. And Con gress repeatedly has ignored reputable studies ca l ling for hundreds of billions of dollars in spending cuts. In 1984, for instance, the Resident's Private Sec tor Survey on Cost Control, known as the "Grace Commission" after cod sion chairman J. Peter Grace, recommended spending reductions and effi Cienc y measures totaling $424 billion over three years. The year following the commissions report, Congress increased federal spending by $94.5 billion, an inflation-adjusted increase of 7.2 percent.

Congress repeatedly has ignored revelations of wasteful spend ing uncov ered by its own respected research arms. Last November, for example, the General Accounting Office (GAO) released its fourth annual report on the implementation of the Federal Managers Financial Integrity Act of 1982 This act was intended to con t rol waste in Federal Financial Management Sys tems. GAO found over 150 billion in program waste, fraud, and financial mismanagement. Said Comptroller General Charles A. Bowsher before the Senate Governmental Affairs Committee The problems that exist are n ot limited to a few agencies or a few programs; rather, all of the major agencies have serious problems.

Each year, the Congressional Budget Office CBO) is required by the Con gressional Budget Act of 1974 to produce a survey of recommended budget ary opti ons for the Senate and House Budget Committees.This years report released in February, recommended program reforms that yield roughly $60 billion in savings in the first year of implementation? And CBO is known for erring on the side of caution. Congress so far has ignored these recommenda tiOIlS.

Record Revenues, Record Taxes. Americans are paying a higher percent age of their income to the federal government than ever before. And the fed eral government is collecting record amounts of revenue. Rather tha n turning to more taxes to deal with the budget deficit, therefore, Congress must turn seriously to the task of cutting spending.

Legislators face a difficult task when spending reductions are necessary.

Most government spending benefits some group of in dividuals or interests. If there were no limit to revenues, Congress could find many worthy projects to fund. But government spending is at the expense of the taxpayer. Helping one interest always harms another. Congress, therefore, must decide which expe n ditures truly serve the national interest and which, while not without merit should be left to state and local governments or to the private sector.

In the face of the budget deficit, Congress and the Administration must jus tify to the American taxpayer why each new dollar of revenue is needed, why the last dollar did not accomplish what lawmakers promised, and why existing programs should continue 1 Judith Havemann, OMBs High Risk List Details Vulnerable Programs, The Washington Post, December 6,1989 2 Congressional Budget Offce, Reducing The Deficit: Spending and Revenue Options, February 1990 2 HOW CONGRESS FORCES UNCLE SAM TO WASTE MONEY Lawmakers are always quick to argue that cuts in federal programs are im possible to achieve without significant r e ductions in the quality or quantity of essential services.They give the impression that all spending is necessary and relevant to the goals of government, and that they have taken all possible steps to permit the Executive Branch to use the most efficient means avail able to deliver services.

The reality is very different. In a number of ways, Congress consciously pre vents the federal government from saving money without reducing necessary services.Thus billions of dollars must, by law, be wasted, rather than being used to reduce the deficit 1) Congress makes it illegal to use privatization to reduce costs.

Congress constantly blocks attempts to inject market incentives into govern ment. After years of academic analysis and successes at the local level, there is no longer any question that the private sector can provide many govern ment services at greatly reduced costs. Yet during the Reagan Administra tion, Congress in many cases passed legislation explicitly blocking White House attempts to expand federal contracting and the sale of certain federal assets. In some cases laws were passed to prevent agencies even from study ing ways to save money through privatization. Currently there are 37 laws blocking privatization, including measures that exempt 70 percent of federal commercial services f rom competition. In addition, Congress often micromanages programs, bypassing the normal chain of command, to require programs to serve certain constituencies. The total cost to taxpayers of these prohibitions 5 billion per year.

Examp1e:The General Servic es Administration is prohibited from contract ing out guard, elevator operation, messenger, and custodial services Examp1e:The Legal Services Corporation may not use vouchers or hire pri vate legal clinics as an alternative to staff lawyers employed by a limited num ber of legal service agencies.hus, it cannot employ the services of private for-profit legal clinics, such as Hyatt Legal Services, or private arbitration or mediation organizations, such as ENDispute Inc. and New York Citys Dis pute Center.

Ex ample: me to congressionally mandated Cmplopent levels, th3 Food and Drug Administration, the Veterans Administration, and the Coast Guard maintenance yard are effectively prohibited from reducing costs through privatization or eliminating duplicative sta ffing.

Amtrak was denied funding and future studies of privatizing Amtrak were prohibited Examp1e:The commission created in 1987 to explore the privatization of 3 2) Congress refuses to close down programs that have completed their pur pose Once Congress c reates a program it rarely lets it die. If the program suc ceeds, some new constituency is found that needs help from the program.

Washingtons bureaucrats are remarkably entrepreneurial, creating new mis sions for their programs and creating new political constituencies.

Some 35 states and many local governments avoid this problem by enacting sunwt 1aws.These laws mandate that an agency or program must expire after a specified period of time, unless the legislature takes specific action to extend its life . But the federal government has yet to accept such a compre hensive system of automatic agency and program review. Failure to close down agencies and programs that have fulfilled their mission may cost taxpay ers as much as $20 billion per year.

Example: The Davis-Bacon Act of 193 1, which establishes inflated prevail ing wages for federal construction contracts over $2,000, was enacted to pro tect unionized construction workers, the majority of whom were white, from competition from lower cost non-union labor, the majority of whom were black. For sixty years this law denied opportunities to black tradesmen and raised federal construction costs by $1.5 billion per year. Yet Congress re fuses to abolish it.

Examp1e:The military commissary system was create d to provide foodstuffs to the cavalry on the Western plains in the 1800s.The program continues today, although over 80 percent of military commissaries are within ten miles of two or more commercial supermarkets.

Examp1e:The Export-Import Bank was create d in 1934 to finance exports to Russia. Sixty-five years later the Bank loses about $400 million a year fi nancing exports for some of Americas largest international corporations bring electricity, and later telephone service, to rural areas of he country .

Today, 99 percent of rural Americans have electricity and 96 percent have telephones. Yet REA still exists at a cost to taxpayers of $2 billion per year Examp1e:The Rural Electrification Administration was created in 1935 to 3) Congress is addicted to cr eating programs.

Congress rarely designs just one program to solve a problem; rather, Con gress tends to spread out a program over many agencies so that as many constituencies as possible become reliant on the program. If a program proves to be a failure, Congress never reforms or abolishes it. Rather, a new program is created to solve the problem or a new layer of bureaucracy is added onto the old one.

Examp1e:There are roughly sixty anti-poverty programs administered by the federal government. Nearly every federal agency has its own anti-poverty program. This includes the military if certain veterans programs are counted.

Examp1e:The Stewart B. McKinney Homeless Assistance Act of 1987, in tended to help the homeless, created seventeen different programs adminis 4 tered through seven federal agencies. Yet, there were already over sixty sepa rate federal programs providing a s sistance to the homeless 4) Congress does not trust people to help themselves With few exceptions, Congress designs programs to empower bureaucrats and private sector professionals, not those individuals that a program was in tended to help. For instance, federal money for the poor reaches recipients only after it has trickled through a half million poverty-industry bureaucrats and untold numbers of private sector specialists, such as doctors, real estate developers, and social workers.

Example: Since the mid-sixties the federal government has spent about a quarter of a trillion dollars to build or subsidize the construction of over four million low-income housing units. The use of housing vouchers, like food stamps, would have allowed the government to he l p twice as many poor indi viduals, using market demand to stimulate construction of more low- and moderate-income housing. More important, vouchers give the poor a greater sense of efficacy because vouchers allow the poor to live where they choose near th e good schools and good jobs, for example 5) Congress is addicted to porkbarrel spending.

The election process provides powerful incentives for each member of Con gress to bring more federal money back to the home district than the voters in the district p aid in federal taxes. This is the political equivalent of the trag edy of the commons problem found with limited natural resources. Because the resource does not have an identifiable owner, it is to everyones advan tage to obtain as much of the resource a s possible before it runs out.The re sult of this situation is obvious; the resource is quickly destroyed by everyones rush to get theirs. In budgetary terms, the result is porkbarrel spending and consistent budget deficits. The cost to the American taxpay ers is difficult to calculate.

Some representative examples of porkbarrel spending are A $107,000 grant from the National Science Foundation and the Na tional Institute of Mental Health for the study of sexual looking, classical conditioning of sexual arou sal, and improvement of copulatory performance with practice of the Japanese quail. The conclusion: male quails prefer fe male quails over male quails and female ducks for mating purposes. Con gress has renewed this study with a $100,000 grant 2,500 to st u dy the causes of rudeness, lying, and cheating on tennis courts 84,000 to study why people fall in love 3 See: Pork Barrel Items in the FY 1990 Appropriations Bills, Citizens Against Government Waste. March 27,1990 and Walter Williams, Your Tax Dollars at Work, The Wmhingrort limes, Apd 13,1990 5 5OO,ooO to build a ten-story replica of the Great Pyramid of Cheops in Bedford, Indiana, and an additional 200,000 to the same city to build a 800 foot replica of the Great Wall of China 46,000 to study how long i t takes to cook breakfast eggs 221,OOO to send twenty-one members of Congress and their officials 68,000 to send officials of the Urban MassTransit Administration to 150,000 for Broom Snakeweed research in New Mexico.

The burden is on Congress to change th e way it does business. Taxpayers should no longer have to pinch pennies so that Congress can spend them with abandon to the Paris Air Show Disney World to study the secrets of the Disney transportation system SLASHING THE DEFICm FY 1991 Summary of Cost S a vings by Budget Function I Last year, in the monograph SZushing the Dejicif: FYI990, Heritage Founda tion experts recommended 128 billion in budgetary spending cuts.The fol lowing recommendations are based in part on that monograph, though greatly summari z ed. Some new recommendations have been added and other recommendations to phase-out programs over many years have been modi fied. Heritage analysts suggest over 130 billion in cuts this year 6 The three fastest growing programs in the budget, Social Secur i ty, Medic aid, and Medicare are not addressed here.These programs are in such serious need of reform that they deserve extensive attention elsewhere. Congress should, however, freeze spending for these programs for one year at 1990 lev els.This one-year p e riod should be used to develop long-term reform policies to bring the spiraling costs of these programs under control All suggested spending cuts are reductions from Fiscal Year 1990 outlays and are, therefore, real dollar cuts, not reductions in projecte d baseline in creases LEGISLATIVE BRANCH Legislative Branch Expenses Deficit Reduction 220 million Repeal the congressional payraise and reduce funding for Congress and Legislative Branch agencies and activities by 10 percent. Congress should not receive a pay raise until a balanced budget has been achieved without a tax in crease Congressional Mail Privilege Deficit Reduction 50 million Reduce expenditures by 50 percent on congressional mailings, known as the franking privilege. Members of Congress use thi s free mailing privilege to enhance their chances for reelection. In 1987, lawmakers sent out 12,000 pieces of mail for every piece received on Capitol Hill GENERAL GOVERNMENT MANAGEMENT Contract Out Federal Services Deficit Reduction 5 billion Issue an ex e cutive order requiring federal agencies to contract out to pri vate firms or groups of federal employees all functions that are not inherently governmental Merge the Department of Energy with the Departments of Interior, Com merce and Defense Deficit Redu c tion 2 billion Close the Department of Energy and transfer all defense related activities to the Department of Defense; place regulatory functions with the Depart ment of Commerce; and, merge resource management functions with the De partment of the Inter i or, creating a Department of Natural Resources 7 Merge HUD and HHS Deficit Reduction 2 billion Move all low -income housing programs into the Department of Health and Human Services; replace all low-income housing assistance with vouch ers; transfer HUDs economic development functions to the states and the Department of Commerce.

Streamline the Department of Agriculture Deficit Reduction 1 billion Move the Food Stamp and nutrition programs into the Department of Health and Human Services; move the Forest S ervice into the Department of Interior and the agricultural trade programs into the Department of Com merce; close the Farmers Home Administration and place all low-income housing programs in HHS Expand Federal Loan Sales and Include Revenues in Deficit R e duction Calculations Deficit Reduction: $4 billion Initiate a comprehensive credit reform program requiring federal lending agencies to sell the existing $250 billion federal loan portfolio, plus sell all new loans to the private sector through competitiv e auctions.

Require Reinsurance on Federal Loan Guarantees Deficit Reduction: $3 billion Require all federal lending agencies to purchase reinsurance from the pri vate sector for all federally-guaranteed loans; establish a new federal loan guarantee policy prohibiting lending agencies from granting a guarantee of more than 90 percent of the face value of a loan.

Cut the Capital Gains Tax Deficit Reduction 4 billion Cut the capital gains tax from 33 percent to 15 percent.

Improve Federal Debt Collection Deficit Reduction 2.5 billion Adopt the standard debt collection procedures found in the private sector.

Modernize Federal Cash Management Deficit Reduction 40 million Charge states and cities interest on federal grant and loan money that is paid before the funds are actually spent. A Treasury Department revolving fund should be established to insure that the federal government is fully com pensated for early payments to the states and cities, as recommended by the 8 Grace Commission. This revolving fund si milarly should reimburse cities and states for late federal payments Repeal the Davis-Bacon Act Deficit Reduction 1.5 billion Repeal the 1931 Davis-Bacon Act, which establishes inflated prevailing wages for federal contracts over 2,0

00. This law was desig ned to protect white labor from competition from lower cost Black labor and has continued to have an adverse impact on minority labor Repeal the Service Contract Act Deficit Reduction 500 million Repeal the Service Contract Act of 1965, which establishes inflated pre vailing wages for federal service contracts of more than $2,5

00. This law has been especially harmful to small, minority-owned businesses NATIONAL DEFENSE Deficit Reduction 11.2 Billion Bushs proposed 1991 Pentagon budget already trims 2.1 pe rcent from last years defense outlays, for a saving (in 1991 dollars) of $6.2 billion. Bush ac complished the savings by terminating thirteen programs including the M-1 tank (saving $1.1 billion in 1991 Maverick missile (saving $367 million in 1991 and Se a Lance anti-submarine warfare missile (saving $156 million in 1991 Bush also proposed cutting two divisions from the Army for savings of 1.2 billion in 1991 and closed 35 military installations New Administration proposals will trim the budget by an addit i onal $2.5 billion in 1991: a cutback in spending for the B-2 bomber, C-17 transport and Advanced Tactical Fighter aircraft programs, and tennination.of the Follow on-to-Lance missile, a 280 mile-range nuclear missile designed primarily for use in Europe. T hese cuts were recommended last March in a Heritage Foundation Backgrvunder, Four Imperatives for Cutting the Defense Budget On top of these savings, Bush can trim another percent or so from the bud e postponing production of the C-17 aircraft putting the equivalent of another Army light division in the reserves get by such measures as 4 Jay P. Kosminsky, Four Imperatives for Cutting the Defense Budget, The Heritage Foundation Backpunder No. 757, March 2,1990 9 slowing down procurement plans for the Army L i ght Helicopter and other programs geared mainly to meet advanced Soviet forces As important an issue as how the Pentagon budget is cut is the question of which programs are protected from the budget ax. Key areas of the budget which should be protected ar e 1) strategic nuclear forces, particularly land and sea-based intercontinental missile modernization programs 2) the Stra tegic Defense Initiative (SDI 3) Marines and Special Forces most likely to be engaged in combat; 4) research and development, and; 5) programs criti cal to armed forces morale and professionalism, such as training time and benefits for military personnel I INTERNATIONAL AFFAIRS Reduce U.S. Contributions to the World Bank Deficit Reduction 110.6 million U.S. taxpayers now are committed t o $30 billion in loan guarantees to the World Bank, in addition to Americas annual contribution. Yet the Bank re peatedly gives out loans contrary to U.S. interests. Funds go to governments in less developed countries that mismanage their economies and was te count less billions of dollars. Moreover, the World Bank continues to increase its loans to less developed countries that have little hope of repaying the loans.

P.L 480 Food for Peace Program Deficit Reduction 146.3 million Elkhate Food for Peace fundi ng except for temporary food shipments in emergencies like earthquakes, droughts, and famines. This program actually has harmed the economies of theThird World countries by depressing the market prices that local farmers can obtain for their crops.

Agency for International Development (AID Foreign Aid Deficit Reduction 3.1 billion Cut the overall AID budget by 50 percent and phase out the remainder of the program over three years. American economic development assistance has effectively rewarded was teful and irresponsible economic policies in less developed nations. Any U.S. economic development aid should be given con tingent on reforms toward free enterprise, free markets, and local entrepre neurship.

U.S. Contributions to the United Nations Defici t Reduction 190 million Cut U.S. contributions to those programs that clearly do not serve Ameri can interests, completely eliminating funding for those which are fundamen tally hostile or ineffective. Specifically: U.N. Food and Agriculture Organiza tion (FAO U.N. Industrial Development Organization (UNIDO World In 10 tellectual Property Organization (WIPO World Health Organization WHO World Heritage Fund; U.N. Relief and Works Agency (UNRWA U.N. Education and Training Program for Southern Africa and the U.N.

Trust Fund for South Africa; and the U.N. Development Program (UNDP International Monetary Fund (IMF Deficit Reduction 5 million End all U.S. direct funding of the IMF and prohibit any new U.S. commit ments in contingent liabilities. The IMF is now re questing a $60 billion capi tol increase which will bring its total operating assets to some $175 billion. It does not need expanded lending authority. Moreover, IMF lending policies actually have led to less economic development in recipient countries be cause IMF loans tend to cover up for bad economic policies and corrupt gov ernments.

Export Import Bank (Eximbank Deficit Reduction 364 million Close the Export Import Bank.The Bank's existing loan guarantee commit ments should be honored, but the Bank sh ould be forbidden from insuring any new 1oans.The Bank was established in 1934 to finance U.S. exports to the Soviet Union. In recent years, the Bank loses an average of around $400 million a year financing exports for some of America's largest multinatio nal companies SCIENCE, SPACE, AND TECHNOLOGY NASA Space Station Deficit Reduction 1.7 billion Delay federal funding of the planned Space Station Freedom for two years.

This period should be used for further study of less expensive options such as encouraging privatization of commercial space activity, or sponsorship of a joint public-private venture.

NASA Mars Project Deficit Reduction lSO-million Delay federal funding of the proposed manned mission to Mars.The entire Mars program is estimated to cost as m uch as $400 billion, according to the Congressional Budget Office (CBO While a manned landing on Mars is a noble goal further thought should be given toward less expensive priorities.

Superconducting Super Collider (SCS Deficit Reduction 218 million Cease funding of the SSC.The SSC would be the world's largest, and most powerful, high energy particle accelerator, with a projected total cost of $8 11 billion to construct and $270 million annually to operate. The SSC will drain funds from less exotic, and l e ss costly, research projects with greater commer cial potential ENERGY Naval Petroleum Reserves (NPR Deficit Reduction 1.6 billion Sell the NPRs through a well-publicized public stock offering. For over sev enty years the federal government has owned and o perated commercial oil fields at Elk Hills, California, and Teapot Dome in Wyoming in case of a na tional emergency. Since these reserves account for about 1 percent of U.S. do mestic output, the government has no reason to continue operating these sites Federal Dams: The Five Regional Power Marketing Administrations mw Deficit Reduction 5 billion Sell the Power Marketing Administrations through public stock offerings.

With few exceptions, the government has not reviewed or revised its policy for pricing t he electrical output of these dams since the 1930s, when many of them were built. Consumers of PMA electricity receive over $1.5 billion worth of subsidies yearly. The federal Treasury could be receiving more than 4 billion per year if the government let b uyers bid for the electricity. Under priced federal power even lights gambling casinos in Las Vegas TheTennesseeValley Authority (TVA Deficit Reduction $5 billion Sell theTVA through a public stock offering after dividing it into three or four independent power generating companies. The TVA, which is a govern ment-owned corporation created in 1933 to bring electricity to theTennessee River Valley, is effectively bankrupt Of TVAs $22 billion in assets, some $15 billion are inoperative.The only way to ensure service to this region is to sell it to the private sector.

Uranium Enrichment Enterprise Deficit Reduction 1.8 billion Sell the U.S. uranium enrichment facilities to the private sector.The logical buyers for this enterprise are current employees, in addi tion to the 108 com mercial nuclear power plants located in the U.S. that purchase the uranium.

Fossil Energy Research and Development Deficit Reduction 383.7 million 12 Ehhate the Fossil Energy Research and Development programs .which support research an d development for new technologies intended for com mercial markets. Alternatively, the government should require private sector cost sharing for all federal energy research and development expenditures with commercial applications. The government should impose a 50 percent up-front cost-sharing charge before launching new research projects and re coup 100 percent of the federal investment if the technology is eventually commercialized.

Rural Electrification Administration REA Deficit Reduction 2 billion E liminate the REA by phasing out REA loans by 1993 and selling existing loans to private investors and commercial banks. The REA was created in 1935 to bring electricity, and later telephone service, to rural areas of the countq.Today 99 percent of rural r esidents have electricity and 96 percent have phone sexvice. Yet REA still distributes 2 billion in below-market cost loans each year.

Clean Coal Technology Program (CCTP Deficit Reduction 151.5 million Eliminate funding for the CCIT, which was created to assist private indus try in developing environmentally safer coal technologies. The federal govern ment currently is funding 60 percent of the programs costs while private in dustry funds the remainder. Since private industry is the beneficiary of this pr ogram, it should bear the full costs. Alternatively, regulations should be changed to allow power companies to use cleaner fuels.

Energy Conservation Programs Deficit Reduction 340.6 million Eliminate funding for energy conservation programs which support re search and development of technologies intended for future use by the pri vate sector. Since private industry potentially may receive lucrative benenfits from this technology, it should bear the full costs.

Energy Supply, Research and Development Activities Deficit Reduction 2 billion Eliminate funding for Energy Supply, Research and Development Activi ties which support research and development on technologies ranging from solar power to magnetic fusion. Co n tinue funding on pure scientific re search projects. Over the last fifteen years, the government has spent bil lions on research projects that have brought little or no return to the govern ment or the private sector. For instance, over $10 billion was sp e nt on nu clear energy research even though ten years has passed since the last U.S commercial reactor was built 13 NATURAL RESOURCES AND ENVIRONMENT Bureau of Land Management (BLM Deficit Reduction: $3 billion Sell the most marketable portions of the 340 m illion cres E Western land owned by the Bureau of Land Management and transfer ownership of the re maining land to the respective states.This should include the same 600,000 acres of land classified as in urbanized areas or with residential, commercial or industrial value, in addition to the 350,000 acres of federal property classi fied as no longer needed for federal purposes. Private buyers could in clude: environmental groups, recreational associations, ranchers, mining in terests, or individual citizen s . Federal ownership of Western land is an histor ical anomaly with no environmental or economic purpose. These are lands that were not transferred to the private sector under the Homestead Act state land grants, and similar means in the 19th and early 20t h centuries.

Bureau of Reclamation -Water and Construction Projects Deficit Reduction 665 million Close down the Bureau of Reclamation, which was formed in 1902 to pro mote economic development in the arid West. Begin by withholding all ap propriations for new water projects which the Bureau itself recommends.

Also, transfer all water distribution and pricing responsibilities to the private sector, thus bringing market efficiencies to the very inefficient and inequita ble Western water market.

Offshore Oi l and Gas Leasing Deficit Reduction 800 million End current moratoria on exploration and drilling of the Outer Continental Shelf (OCS).Technology can prevent the oil spills that drilling restrictions are intended to prevent. Experience of the past two dec ades demonstrates that offshore drilling need not damage the environment. Most spills occur as a result of shipping oil over long distances, not from offshore drilling.

Arctic National Wildlife Refuge (ANWR) Leasing Deficit Reduction 1 billion Lease the Ar ctic National Wildlife Refuge (ANWR) tracks immediately through competitive bidding under standard Department of Interior leasing guidelines. According to a 1987 Department of Interior study, ANWR oil could bring $38 billion in new revenue to the federal Treasury.

Powder River Basin Coal Deficit Reduction 2 billion Sell the federally-owned coal that lies under the privately-owned surface land in the Powder River Basin in Wyoming.The sale should be accom 14plished through competitive auctions, or possibly t hrough the public sale of stock in a newly created coal management corporation U.S. Forest Service Road Building Deficit Reduction 224 million Discontinue subsidized road building for private timber companies. The U.S. Forest Service is the worlds largest road builder. Under its direction over 342,000 miles of roads have been built, eight times the mileage of the U.S. Interstate Highway System.This program is extremely harmful to the en vironment, yet it continues only because the Forest Service claims tha t timber sales yield considerable revenues to the U.S. Treasury. According to the Wil derness Society, these claims are false: the Forest Service actually has aver aged 406 million in annual losses since 1982 Land Acquisition U.S. Forest Service and Nation a l Park Service Deficit Reduction 210 million Cancel all new land purchases by the U.S. Forest Service and the National Park Service. The federal government already owns 727 million acres of prop erty. Only the Soviet Union and China own more public land. The govern ment should begin to facilitate the purchase and stewardship of existing fed eral holdings by private conservation organizations.

Recreational Lands User Fees Deficit Reduction 1 billion Raise entrance fees for federal recreational lands to refl ect the costs of maintenance and operations. Congress prevents federal land management agencies, such as the National Park Service, the Army Corps of Engineers and the National Forest Service, from charging fees for use of most public lands and facilities . Minimal fees collected by the Park Service, about $55 mil lion, do not come close to covering the agencys annual outlays of $729 mil lion. Meanwhile, the fragile environment of these parks suffers near irrepara ble stress because there is no market mecha nism to regulate visitorship.

Environmental Protection Agency (EPA Enforcement Activities Deficit Reduction 200 million Mow independent, private environmental auditors-to take-over the (EPA monitoring of industry compliance with EPA standards. EPA currentl y spends nearly $800 million on the Abatement, Control, and Compliance pro gram. Yet, much of this monitoring could be accomplished through the pri vate markets, as is done with financial auditing.

EPA Wastewater Treatment Construction Grants Deficit Redu ction 2 billion Eliminate the wastewater treatment construction grants program; which provide initial capital to states Revolving Funds for loans to local govern 15 ments to construct treatment facilities.The $50 billion spent in this program since 1972 h a s encouraged local governments to build "gold-plated" treat ment facilities rather than look for lower-cost and more environmentally safe alternatives National Oceanic and Atmospheric Administration (NOM Deficit Reduction 40 million Impose a 100 annual li c ensing fee on fishermen for the right to fish in fed eral waters. Other fishing user fees should also be reviewed.The National Ma rine Fisheries Service spends over $100 million a year promoting fishing and conserving fishing resources in federal waters. Fishermen should pay for some of the benefit they receive.

Bureau of Mines Deficit Reduction 180 million Close the Bureau of Mines.The Bureau's important data gathering activi ties should be merged with other research agencies within the Department of 1nte rior.The research and development facilities of the Bureau should be closed, or sold to the private sector which has a direct financial interest in conducting some of this research.

Federal Helium Reserves Deficit Reduction: $60 million Sell the federal h elium reserves and the Exell helium refining plant near Amarill0,Texas. Between 1929 and 1961 the federal government was virtually the sole supplier of helium. The private market now is flourishing and should not have to compete with subsidized government helium.

The National Weather Service (NWS Deficit Reduction 60 million Institute user fees that reflect the true cost of service. Additionally, close or contract out any activities that compete with the private sector.There are ap proximately 100 private companies in the U.S. preparing and disseminating weather forecasts to businesses and the public on a commercial basis AGRICULTURE Farm Subsidies Deficit Reduction 10 billion Discontinue direct subsidies to farmers and the federal crop price support progr a ms managed by the Agricultural Stabilization and Conservation Ser vice and the Commodity Credit Corporation. Farm subsidies are anti-con sumer, and are especially burdensome for low-income families. Farm subsi dies add as much as $10 billion to food price s for American households 16 Moreover, according to Cat0 Institute scholar, James Bovard, With the $260 billion that government and consumers have spent on farm subsidies since 1980, Uncle could have bought every farm, barn, and tractor in thirty three sta t es Federal Crop Insurance Corporation (FCIC Deficit Reduction 500 million Phase out FCIC, which insures farmers against crop losses resulting from natural disasters such as droughts, floods, hurricanes, fire, and insect infesta tion. The government should use measures to promote a more mature private crop insurance industry. While participation in FCIC currently is voluntary farmers receiving any level of agricultural subsidies or loans should be re quired to purchase crop insurance from private insurers T h e role of the FCIC should be relegated to that of a reinsurer of private insurance firms Agriculture Extension Service Deficit Reduction 190 million Reduce the Agriculture Extension Senrice budget by half and phase out the remainder of the program over th r ee years. The County Cooperative Exten sion Program was established in 1914, at a time when 35 percent of Ameri cans lived on farms.Though only 2.2 percent now reside on farms, the pro gram continues. The training, education, and marketing assistance acti v ities of the Extension are duplicated by dozens of other state and local programs in addition to private groups such as the American Farm Bureau Association COMMERCE AND HOUSING CREDIT Federal National Mortgage Association (Fannie Mae) and Federal Home Lo a n Mortgage Corporation (Freddie Mac I Deficit Reduction 500 million Begin the process to phase out over ten years all special government bene fits enjoyed by FNMA and FHLMC. Place a temporary annual fee of 0.25 percent on all single-family and multifamily mortgages sold to or guaranteed by FNMA or FHLMC.This fee should be paid by borrowers, collected by lenders, and passed through to theTreasury. Reduce the cap on the maxi mum mortgage amount that can be held or traded by FNMA or FHLMC to 150 percent of lo c al conventional home loan values. Remove the exemption from Securities and Exchange Commission reporting requirements that each enjoy 5 James Bovard, The Fm FiaFco (San Frank Institute for Contemporary Studies Press, 1989 p 1 17 Federal Housing Administra t ion (FHA Deficit Reduction 1 billion The FHA may soon become the next Savings and Loan Crisis.The FHA must be held to the same capital requirements as private mortgage insurers: 4 percent. Also, require a minimum downpayment of 5 percent of the mortgage a m ount from homebuyers obtaining FHA insurance. Default rates are ex ceedingly high for. loans with less than 5 percent downpayments. Impose on lenders a 5 percent coinsurance requirement on all FHA-insured loans, and discontinue FHA mortgage insurance on s e cond homes or investor proper ties Small Business Administration (SBA Deficit Reduction 340 million Close the SBA and sell all outstanding loans to the private sector.The SBA has been a dismal failure, with around 12 percent lost each year on the $3 bil l i on of loan guarantees it issues. As many as 20 percent of SBA direct loans default. Only two-tenths of 1 percent of all small businesses in the nation re ceive SBA 10ans.To be eligible for SBA direct and guaranteed loans small businesses must have been re jected by two previous banks. As a result, SBA loans divert venture capital away from enterprises that seem likely to succeed to those with are more likely to fail.

Federal Communications Commission Auctioning of the Electromagnetic Spectrum Deficit Reduct ion: $23 billion Auction licenses for unassigned frequencies of the electromagnetic spec trum to the highest bidder, with the revenues from the auction going to the U.S.Treasury. Auctioning is a more efficient and equitable method of assign ing frequencie s TRANSPORTATION Interstate Commerce Commission (ICC Deficit Reduction 43 million Complete the deregulation of the trucking industry, and abolish the ICC.

Remaining ICC functions shoul d be distributed to other agencies.The ICC's rail regulatory functions, for instance, should be moved to the Department of Transportation, while its consumer protection functions could be handled by the Federal Trade Commission.

Urban Mass Transportation Administration (UMTA Deficit Reduction 2 billion Eliminate all federal transit operating subsidies immediately, since they subsidize inefficiency in transit operations. Cost-sharing by local governments 18 should be raised to 50 percent from 25 percent on all new projects. Despite a 40 billion investment in urban transit projects over the past quarter century 10 percent fewer transit trips were taken in 1986 than in 1963, the year before the program began. Much of the 40 billion in federal aid has been spe nt on gold-plated transit projects which attract few riders Amtrak Deficit Reduction 500 million Sell Amtrak to the private sector in the same manner as the sale of Conrail.

While Amtrak is becoming more self-sufficient than in the past, federal subsi dies to Amtrak average about 25 per passenger trip Federal Highway Administration Deficit Reduction 4 billion Declare the interstate highway system complete. Over 98 percent has been completed, any further construction should be done by the states or by pri v a te companies using toll road arrangements. Eliminate funding for all high way demonstration projects. Allow states to impose tolls to cover the cost of maintaining and extending roads that have received no more than 75 per cent federal funding.This would lift the current ban on direct user fees for pri mary and urban roads, but continue the ban on tolls on portions of the inter state highway system.

Federal Aviation Administration (FAA Deficit Reduction: $2 billion Eliminate payments for aviation from the general treasury, except for the estimated 15 percent of FAA costs due to military use. The success of airline in-air deregulation should be extended to on-the-ground operations.The Department of Transportation should be more aggressive in selling airport s to private firms or contracting out a greater portion of airport management.

Maritime Administration Deficit Reduction 400 Repeal the cargo preference requirement for exports shipped and fi nanced by the U.S. government. Although the Maritime Administrat ions ac tivities originally were designed to promote U.S. national security interests today many of its programs particularly the cargo preference law are lit tle more than protectionist measures intended to shield the U.S. shipping in dustry from foreign competition. Protectionism for U.S. shipping interests adds to the costs of U.S. exporters and thus harms Americas competitiveness.

United States Coast Guard Deficit Reduction 500 million Charge fees for Coast Guard services, such as aids to navigation, b oat tow ing, and ice breaking, which benefit easily identifiable users. Conduct a com 19 prehensive inventory of Coast Guard property holdings and begin to sell un necessary land and facilities COMMUNITY DEVELOPMENT Community Development Block Grants (CDB Gs Deficit Reduction 2.5 billion End the Community Development Block Grant program, and apply $500 million of the programs funding toward tax abatement in federal enterprise zones in blighted areas.

Farmers Home Administration FmHA Deficit Reduction 3 bill ion Close the FmHA and shift all low-income housing programs to the Depart ment of Housing and Urban Development. Repeal the 1987 congressional prohibition on further sales of FmHA loans to the private sector. Sell off the mounting inventories of defaulte d properties as FmHA accumulates them FmHA has been a disaster.The General Accounting Office estimated that 1987 losses totaled $13 billion, pushing FmHAs accumulated deficit to a stag gering $42 billion.The situation is getting worse each year.

Appalachia n Regional Commission (ARC Deficit Reduction 108 million Abolish the Appalachian Regional Commission. Since this program was en acted in 1965, the federal government has spent nearly $6 billion in this eco nomically distressed region, two-thirds of that i n vestment on roads.The ARC duplicates fourteen federal rural aid programs provided by the Departments of Transportation, Labor, and Agriculture EDUCATION Impact Aid Deficit Reduction 764 million Elirhinate the Impact -Ad program which is intended to compen s ate local governments for the ostensible cost of educating school children of federal employees.This program was established during World War I1 based on the erroneous premise that military bases and other federal facilities are a cost for local communiti es.

Bilingual Eduction Programs Deficit Reduction: $100 million Cut federal funding for bilingual eduction by 50 percent and remove all re strictions on the instructional methods adopted by local schools. The remain 20 ing funds should be given to local sc hool districts to develop the programs they deem most appropriate and effective.

Stafford Student Loan Program Deficit Reduction 1 billion Reform the Stafford Student Loan program by eliminating all federal inter est rate subsidies to students after they leave school. Serious study should be given to imposing a 10 percent to 15 percent co-insurance requirement on lenders. Default rates on student loans are nearing 15 percent, and nearly 3 million Americans now hold delinquent loans, worth $5.5 billion to the fed eral Treasury.

Howard University Deficit Reduction: $100 million Reduce total federal support for Howard University by 50 percent. Al though Howard University, in Washington, D.C is a private institution, it re ceives nearly $200 million annually i n federal support. Howard should be re quired to develop a plan for self-sufficiency over ten years using a graduated matching grant system College Work Study Program (CWS Deficit Reduction: $606 million End the federal role in the College Work-Study prog r am, which makes grants to participating institutions that provide part-time jobs for disadvan taged graduate and undergraduate students. Nearly all of the students who take advantage of this program already collect student aid in other forms.The federal g overnment should not have to pay for both a students education and his or her part-time job.

Corporation for Public Broadcasting Deficit Reduction: $150 million Reduce funding for the Corporation for Public Broadcasting to $80 million and phase out support over the next three years. With todays boom in cable television and the rental movie market, taxpayer supported television and radio, if it was ever justified, is now unnecessary and should be ended National Foundation on the krts and the Humanities Defi c it Reduction 210 million Reduce by two-thirds federal funding for the National Foundation on the Arts and Humanities which gives grants to the National Endowment for the Arts and the National Endowment for the Humanities; then expand the Chal lenge Grants program currently operated by the National Endowment for the Arts. Funding would be phased out over three years.There is no shortage of private financial support devoted to the arts and humanities. The American 21 Association of Fund-Raising Councils calc u lates that in 1987 private dona tions to arts, culture, and the humanities was $6.41 billion Job Training Partnership Act (JTPA Deficit Reduction 3.9 billion Terminate the JobTraining Partnership Act, which is designed to provide job training for poor you t h through block grants to the states, in addition to federally managed programs, such as the Job Corps. Government directed job training programs have a long history of failure. More often than not, job training programs have simply been a boondoggle for p rivate operators and bureaucrats.There are other methods of achieving the same end that should be tried, such as: the Earned IncomeTax Credit, lowering the minimum wage, repealing occupational licensing laws at the local level, or, perhaps eliminating any tax burden on individuals below the poverty line Job Corps Deficit Reduction 767 Million If JTPA is not eliminated, Congress should at least terminate the Job Corps program which is intended to provide training for disadvantaged, un employed youth. It sho u ld discontinue the construction of all new centers and sell off the remaining centers under government control. Job Corps has a twenty-five year record of failure. According to the Office of Management and Budget the Job Corps is the most expensive job tr a ining program admin istered by the Department of Labor. Training costs per youth average be tween 15,000 (privately managed facilities) and $21,000 (federally managed centers) for an eight month session Trade Adjustment Assistance Deficit Reduction 196 mi l lion Eliminate all funding for Trade Adjustment Assistance, which is intended to aid workers whose jobs have been lost due to import competition. Workers who lose their jobs as a result of foreign competition should not receive gov ernment benefits that e xceed the assistance available to those laid off due to domestic competition.

Community Services Block Grants (CSBGs Deficit Reduction 300 million End the Community Services Block Grant (CSBG) program, created in 1981 by consolidating several federally-fun ded community action programs that had been part of Lyndon Johnsons Great Society efforts. The $90 mil lion remaining in this programs $390 million budget should be directed to ward federal tax abatement in enterprise zones in blighted areas. A recent Gen e ral Accounting Office (GAO) study found that more than 30 percent of CSBG funds are used to defray the administrative costs incurred by local so cial service agencies as a result of local and federal regulations. The Davis Bacon wage-setting law can add 2 5 percent to administrative costs, and local 22 building and zoning codes can add 15 percent to 25 percent to the cost of building low-income housing HEALTHCARE National Institutes of Health (NIH Deficit Reduction 1.14 billion Reduce by 30 percent funding f or the NIH, which fund biomedical research in a variety of health care areas. During the 1980s, as much as 30 percent of NIH extramural grant funds went to recipients' indirect overhead costs rather than basic research. Institute a graduated matching-gran t program which would require recipients to find additional sources of support for their work.

This would also act as a check on the validity of the research conducted Health Resources and Services Administration (HRSA Deficit Reduction 370 million Reduce by 20 percent funding for the HRSA. Transfer control of commu nity health centers, migrant cen t ers, and black lung clinics to the states by transforming HRSA funds into a Primary Care Block Grant. Reducing the strings attached to this block grant would allow each state to tailor assistance to meet unique local primary care needs Consumer Product Sa f ety Commission (CPSC Deficit Reduction 35 million Abolish the CPSC. Consumers and firms do not need the CPSC. The legal system has more than adequate protection against defective products. More over, product monitoring is handled very capably by privafe f i rms, such as Un derwriters Laboratory, Inc and publications, such as Consumer Reports INCOME SECURITY Civil Service Employee Retirement Deficit Reduction $3 billion Bring Civil Se-Mce Retirement benefits in line wifh private sector pack ages. Such reforms should include: raising the federal retirement age from 55 to 65; eliminating the lump-sum retirement option; calculating retirement benefits based on an average of the five highest annual salaries in an employee's earnings history, rather than the curren t top three years earnings base; and reducing cost-of-living adjustments (COLA) from the full Con sumer Price Index to the CPI less 1 percent. The government pays out over 30 billion a year to two million civil service retirees. The unfunded liabilities of the civil service retirement system are mushrooming to potentially cata strophic levels 1 trillion by some accounts 23 1 Unemployment Insurance Deficit Reduction 2 billion Reform the Federal-State Unemployment Insurance program, which will pay out 19.5 bi l lion to unemployed workers this year. Initial reforms should include delaying the 26 weeks of unemployment benefits for unemployed workers for two weeks, and allowing firms to opt out of the program if in stead they establish and make payments to Personal Unemployment Insur ance and Training Accounts for all employees. Another long-term reform is to give workers tax incentives for purchasing individual unemployment insur ance Privatize Public Housing Deficit Reduction 1.3 billion Take steps to begin privat i zing public housing. There are approximately 1.4 million public housing units nationwide, managed by 3,300 local public hous ing authorities. Federal expenditures now total over $6.5 billion a year 1) Offer all public housing developments nationwide for s a le to the highest bidder An estimated 20 percent would be purchased in the first year, yielding immediate savings to the federal government (as well as income from sales 2) Require purchasers to maintain the properties sold as privately managed public hou s ing for five years. Purchasers .would underwrite all maintenance and operating costs and freeze rents at pre-sale levels with annual increases for inflation. After five years, purchasers would own property free and clear, with the option to convert to oth e r uses or retain as low-income housing 3) Use the proceeds from the sale of public housing units to fund hous ingvouchers for displaced tenants, and apply the balance to deficit re duction. Mce as many poor can be assisted with vouchers than is possi ble with public housing.

Child Nutrition Programs Deficit Reduction 1 billion Eliminate $1 billion of the $4.9 billion in federal grants to states which com pensate for families with incomes over 130 percent of the poverty level who participate in School Lunch programs, School Breakfast programs, and Child Care Feeding programs. Families with incomes below 130 percent of the pov erty level with children in schools that do not participate in the meals pro gram should be given additional food stamps or governmen t cash assistance equal to the amount of subsidy in the child nutrition program.

Aid to Families With Dependent Children (AFDC MEDICAID, and Re lated Welfare Benefits Deficit Reduction 6.5 billion 24 Limit to seven years the time that a family can remain o n the Aid to Fami lies with Dependent Children assistance rolls. This will reduce the current welfare rolls by roughly one-third and reduce total state and federal spending by $10.2 billion. There are 3.7 million families currently receiving AFDC as sista nce; and, these families will, on average, stay on the program 11.5 years.

Two million of the current beneficiaries will receive benefits over ten years with an on-average stay of 16.5 years. This prolonged welfare dependence pro vides m unsuitable environment for raising young children.

Low Income Home Energy Assistance Deficit Reduction 1.4 billion Immediately end the Low Income Home Energy Assistance program and replace it with a scaled-back program to provide only emergency and tempo rary energy aid to very low-income families facing disconnection of their utili ties VETERANS BENEFITS Veterans Medical Benefits Deficit Reduction 3 billion Convert veterans health benefits to a reimbursement system, paying for treatment by private doctors, hospitals, and n ursing homes, with full coverage provided for treatment of service-related disabilities and tapered coinsurance charges for treatment of nonservice-related disabilities. Also, reduce VA medical staff levels over several years in areas where adequate alter n ative treatment facilities exist. VA health care equipment and buildings located in these areas should be sold to the private sector or closed JUSTICE Legal Services Corporation Deficit Reduction 306 million Eliminate funding for the Legal Services Corpor a tion which is intended to provide legal assistance to low-income individuals. Encourage the use of pri vate-non profit dispute resolution organizations and give vouchers to those who need other legal assistance. The Legal Services Corporation has betrayed its mission by involving itself in political advocacy work, not legal aid to the poor.

The Bureau of Prisons 1 Deficit Reduction 100 million Begin gradually to contract with private corrections firms to administer and operate prison facilities, including the special need facilities, such as juve 25 nile institutions and illegal immigration facilities as well as the minimum secu rity Also, finance the construction and expansion of federal prisons through lease-purchase arrangements Federal Blue Collar Sala ries Deficit Reduction 900 million Reevaluate the pay rates for non-key jobs. Reform the step classification system within each occupational grade level to bring federal pay into line with private sector pay rates.

Scott Hodge Grover M. Hermann Fellow in Federal Budgetary Affairs FEDERAL PAY 26


Scott A.