Cato Policy Analysis No. 515 June 2, 2004

Policy Analysis

Downsizing the Federal Government

by Chris Edwards

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


Executive Summary

The federal government is headed toward a financial crisis as a result of chronic overspending, large deficits, and huge future cost increases in Social Security and Medicare. Social Security and Medicare would be big fiscal challenges even if the rest of the government were lean and efficient, but the budget is littered with wasteful and unnecessary programs.

In recent years, mismanagement scandals have occurred in many federal agencies, including the Army Corps of Engineers, the Bureau of Indian Affairs, the Department of Energy, the Federal Bureau of Investigation, and the National Aeronautics and Space Administration. Even the National Zoo in Washington has recently been shaken by scandal. The $2.3 trillion federal government has simply become too big for Congress to oversee.

The good news is that Americans do not need such a big government. Most federal programs are unconstitutional, unnecessary, actively damaging, or properly the responsibility of state governments or the private sector. This study analyzes programs that could be cut to create annual budget savings of $300 billion. If these cuts were phased in over five years, the budget would be balanced by fiscal year 2009 with all of President Bush's tax cuts in place.

Some reform ideas should be applied throughout the government. Business subsidies should be terminated, and commercial activities should be privatized. Also, federal grants to the states should be scaled back. Currently, a complex array of 716 grant programs disgorges more than $400 billion annually to state and local governments, which become strangled in federal regulations. That form of "trickle-down" economics is very inefficient.

Such reforms were on the agenda in the Reagan administration and in the Republican Congress of the mid-1990s. But the need for spending cuts is even more acute today because of the large fiscal imbalances that loom from projected growth in entitlement costs. Spending cuts would not just balance the budget; they would also increase individual freedom and expand the economy. All federal spending displaces private spending, but many federal programs actively damage the economy, cause social ills, despoil the environment, or restrict liberty as well.

Given the government's record of mismanaged and damaging programs reviewed in this report, policymakers should be far more skeptical about the government's ability to solve problems with higher spending.

Full Text of Policy Analysis No. 515 (PDF, 68 pgs, 347 Kb)

2004 The Cato Institute
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