House and Senate budget negotiators, led by Rep. Paul Ryan and Sen. Patty Murray, have been meeting to find ways to trim spending and solve the federal budget mess. Many pundits are giving them low odds at agreeing to major reforms.
However, policymakers need to understand that we are on a unique and dangerous path in U.S. fiscal history. The federal debt burden has never been anywhere near as high as it is today during peacetime, and official projections show that debt as a share of the economy will rise relentlessly in coming decades unless we enact reforms.
So now would be a good time for President Obama to follow through on his promise to go “page by page, line by line” through the budget “eliminating those programs we don’t need.” Republicans, for their part, should propose their own cuts, including to programs usually defended by conservative interests.
Federal policymakers will have to make spending cuts sooner or later, and the sooner the better to avoid racking up even more debt.
Some economists claim that spending cuts would hurt the economy, but that is based on faulty Keynesian theories and ignores real-world experience. The truth is that spending cuts would shift resources from harmful and mismanaged government programs to more productive private uses, which would increase overall economic growth.
To spur Democratic and Republican efforts, here is my 10-point plan that would cut a wide range of programs; programs that are considered “sacred cows” to both Democrats and Republicans. This plan would reduce spending more than $3 trillion over 10 years — based on CBO numbers — balance the budget, and cut our dangerously high debt burden. The recommended cuts include:
Corporate Welfare. Farm subsidies distort agriculture and go to well-off households who don’t need hand-outs. Energy subsidies have been one disaster after another, including $500 million wasted on Solyndra. Phasing out farm and energy subsidies would save $160 billion.
Privatization. Candidates for privatization include Amtrak, the Corps of Engineers, federal dams, airport screening, and air traffic control. Privatizing these activities would save at least $110 billion.
Intelligence Budget. Recent revelations of the huge size and intrusiveness of federal spying activities have appalled many Americans, and the budgets of the intelligence agencies have become bloated. Cutting spending by one quarter would save $110 billion.
Drug War. The war on drugs wastes a huge amount of resources in our police and justice systems. It also harms civil liberties, foments violence, and does little to curb drug use. Ending the federal drug war would save $110 billion.
Subsidies for the States. Washington runs more than 1,100 aid-to-state programs. These programs are hugely bureaucratic and stifle local innovation. A high priority should be to phase out federal subsidies for K-12 schools, which would save $180 billion and free the states to fix their own education systems.
Subsidies for Individuals. The government runs a vast array of individual aid programs, but these activities would be better handled by the states and private charities. Phasing out federal food stamp subsidies would save $400 billion.
Military Overreach. The Constitution envisioned a military to “provide for the common defense” of the United States, not one that serves as the world’s policeman. Congress should reduce overseas military activities and create a leaner force structure. Making reforms to meet the budget caps for 2014 and beyond could save at least $200 billion.
Medicare. Medicare spending is the largest factor pushing the budget into crisis. Raising premiums and increasing cost-sharing would save $330 billion. But policymakers should also restructure the program by directing payments to enrollees not providers, which would generate greater choice, cut costs, and spur innovation.
Medicaid. Medicaid’s matching grants to the states have led to huge cost growth, but not better health care. Congress should give each state a fixed amount of funding and free them to create better health programs. Limiting annual growth in the block grant to five percent would save $760 billion.
Social Security. Social Security has huge unfunded obligations, and it causes ongoing damage by reducing personal savings and harming labor markets. Meanwhile, spending on disability programs has soared. America should move to personal savings accounts for retirement and disability, but meanwhile we would save $640 billion by indexing initial benefits to prices, raising the retirement age, and trimming disability rolls by one quarter.
Federal policymakers will have to make spending cuts sooner or later, and the sooner the better to avoid racking up even more debt. The cuts here are assumed to be phased in over 10 years, and the dollar amounts are 10-year figures.
It’s true that politicians don’t like to cut spending, but they should not think of cuts as taking bad-tasting medicine. Rather, cuts would generate large benefits by expanding individual freedom and liberating resources for private sector growth.
The challenge for Paul Ryan, Patty Murray, and the other members of Congress will be to put aside all the usual special-interest pleading, and act in the broad public interest to cut federal spending.