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No. 515

June 2, 2004

Downsizing the Federal Government

by Chris Edwards

Executive Summary

Some reform ideas should be applied through-

The federal government is headed toward a

out the government. Business subsidies should be

financial crisis as a result of chronic overspend-

terminated, and commercial activities should be

ing, large deficits, and huge future cost increases

privatized. Also, federal grants to the states should

in Social Security and Medicare. Social Security

be scaled back. Currently, a complex array of 716

and Medicare would be big fiscal challenges even

grant programs disgorges more than $400 billion

if the rest of the government were lean and effi-

annually to state and local governments, which

cient, but the budget is littered with wasteful and

become strangled in federal regulations. That

unnecessary programs.

form of "trickle-down" economics is very ineffi-

In recent years, mismanagement scandals have

cient.

occurred in many federal agencies, including the

Such reforms were on the agenda in the

Army Corps of Engineers, the Bureau of Indian

Reagan administration and in the Republican

Affairs, the Department of Energy, the Federal

Congress of the mid-1990s. But the need for

Bureau of Investigation, and the National Aeronau-

spending cuts is even more acute today because of

tics and Space Administration. Even the National

the large fiscal imbalances that loom from pro-

Zoo in Washington has recently been shaken by

jected growth in entitlement costs. Spending cuts

scandal. The $2.3 trillion federal government has

would not just balance the budget; they would

simply become too big for Congress to oversee.

also increase individual freedom and expand the

The good news is that Americans do not need

economy. All federal spending displaces private

such a big government. Most federal programs are

spending, but many federal programs actively

unconstitutional, unnecessary, actively damaging,

damage the economy, cause social ills, despoil the

or properly the responsibility of state govern-

environment, or restrict liberty as well.

ments or the private sector. This study analyzes

Given the government's record of mismanaged

programs that could be cut to create annual budg-

and damaging programs reviewed in this report,

et savings of $300 billion. If these cuts were phased

policymakers should be far more skeptical about

in over five years, the budget would be balanced by

the government's ability to solve problems with

fiscal year 2009 with all of President Bush's tax

higher spending.

cuts in place.

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Chris Edwards is director of fiscal policy studies at the Cato Institute.