Commentary

Can We Afford the Dole Tax Cut Plan?

By Dean Stansel
August 23, 1996

According to President Clinton’s economic policy adviser Laura Tyson, Bob Dole’s tax cut proposal will blow a huge hole in the deficit.

That plan is projected to result in $550 billion less federal revenue over the next six years than would otherwise be collected. Can we reduce projected spending by $550 billion over the next six years? Absolutely. In fact, that feat can be accomplished, even if we accept the assumption that two-thirds of the budget—entitlements and military spending—is untouchable. The following are eight modest proposals that would do so.

1) Eliminate the Department of Commerce: $20 billion. The Census Bureau, the Patent and Trademark Office and the weights and measurement functions of the National Institute of Standards and Technology could be salvaged. The other 85 percent of Commerce’s budget goes for the National Oceanic and Atmospheric Administration (NOAA) and a big helping of corporate pork, both of which should be eliminated. NOAA—the largest agency in Commerce—performs services that are already being provided by the private sector, such as mapping and charting and weather forecasting. Even the Clinton administration has proposed privatizing parts of NOAA’s National Weather Service.

2) Eliminate the Department of Energy: $30 billion. Three-fourths of the department’s budget funds atomic energy defense activities that should be transferred to the Defense Department.Within that category, spending on environmental management activities—which have been criticized by the General Accounting Office for using DOE resources unwisely—should be reduced by 30 percent. The rest of the programs of the Department of Energy, which provide various subsidies to the energy industry, should be privatized or terminated.

3) Downsize the Department of Education: $90 billion. About two-thirds of the department’s budget funds the Offices of Post secondary Education and of Elementary and Secondary Education. As Milton Friedman has noted, our government-run student loan system forces those who are not able to or do not go to college to subsidize the expenses of those who do. Further, laundering taxpayer dollars through Washington just to send them back to local education bureaucrats, with numerous strings attached, is a dubious practice. In December 1994 the Washington Post editorialized that America’s schools are not noticeably better because a Department of Education was created. The Post had it right. The Education Department should be eliminated. However, even just cutting its projected budget in half would save taxpayers about $90 billion.

4) Downsize the Department of Housing and Urban Development: $95 billion. Bureaucrats in Washington are poorly equipped to solve the housing problems of inner cities. One look at our nation’s disastrous housing projects should make that quite clear. While HUD should be completely eliminated, even if we kept half of its projected budget intact, tax payers would save roughly $95 billion.

5) Terminate corporate welfare programs in the Department of Agriculture: $120 billion. At least one-third of USDA’s budget consists of programs that subsidize the agriculture industry. Eliminating those programs would help restore a free market in agriculture.

6) Terminate corporate welfare programs in the Department of Transportation: $70 billion. Similarly, about one-third of DOT’s budget consists of programs that subsidize private industry. That corporate pork should be eliminated.

7) Privatize federal assets: $120 billion. The government owns about one-third of all the land in the United States and tens of billions of dollars worth of other assets. Given his poor managerial track record, Uncle Sam is uniquely unqualified to serve as federal landlord. Selling off $20 billion worth of those assets per year would be a step in the right direction.

8) Eliminate the Small Business Administration: $3 billion. Fewer than half of 1 percent of America’s small businesses benefit from SBA’s programs, and, in any case, subsidizing private businesses is not a legitimate role of government. Reducing their tax and regulatory burdens would be much more helpful.

These eight modest spending cuts would provide the $550 billion in savings needed to pay for Dole’s tax cut, without touching entitlements or military spending. And that does not include the inevitable interest savings from lower deficits, nor any increased revenue from the supply-side effect of reductions in marginal tax rates. The occurrence of each of those would allow Americans to enjoy even further tax cuts.

Spending can and should be cut much further. For instance,while a strong national defense is a vital role of government,bringing home and demobilizing just half of the 100,000 U.S.troops stationed in Europe could save roughly $50 billion over the next six years. Eliminating both the Education Department and HUD—rather than just cutting them in half—would save taxpayers an additional $185 billion. Ending foreign aid would save another $70 billion.

Can we afford the Dole tax cuts without blowing a huge hole in the budget deficit? The answer is a resounding yes.

Dean Stansel is a fiscal policy analyst at the Cato Institute.