Budget Education Proposals

Mr. Chairman, I am honored to have the opportunity to discuss the Cato Institute’s ideas for reducing federal spending in the area of the Department of Interior, the Department of Energy and related agencies.

Later this month the Cato Institute will release a comprehensive budget plan that outlines how the federal budget could be balanced by the year 2000 without new taxes. Indeed, the Cato Institute plan would balance the budget and allow for $400 billion of tax cuts—or more than twice what the GOP Contract with America calls for. Our budget plan would reduce federal spending by $1 trillion over five years—that is it would reduce five year spending from $9 trillion down to $8 trillion. This is a far more ambitious agenda than what would be required under the balanced budget amendment now being debated.

I know that this committee is most interested in our specific recommendations with respect to the spending program’s under your jurisdiction, but I would like to briefly tell you of the broad fiscal strategy we have developed.

There are eight components to the Cato budget plan:

1) A 4.5 percent across-the-board rescission in all federal programs except Social Security for the second half of 1995 through the end of FY 1996. The centerpiece to any credible plan to reduce the deficit is to pull forward the hard choices. The more common practice of extending budget caps continually out in the future, as has been the Bush-Clinton approach for the past six years, defers tough decisions that never seem to be made. The Congress must showcase its commitment to long term fiscal restraint by cutting spending immediately—that is cuts from the already approved 1995 budget.

2) The termination of more than 100 federal programs and agencies—a large number of which fall under this subcommittee’s jurisdiction.

3) A reduction in the defense budget to $200 billion by the year 2000 to reflect the post-Cold War realities.

4) A 60 percent reduction in the foreign assistance budget.

5) Long term cost reduction reforms in Social Security, such as significantly raising the retirement age, with the eventual goal of privatizing the program.

6) A series of health care reforms, including cost sharing and Medical Savings Accounts, to reduce the inflation in Medicare and Medicaid.

7) A plan to end the federal government’s failed role in welfare by turning all public assistance programs over to the states and private charities.

8) The sale of at least $200 billion worth of non-environmentally sensitive federal lands and other federal assets with the proceeds used to reduce interest on the national debt.

The Cato Institute budget would dramatically reverse the growth of government that has occured over the past quarter century. Tables 1 and 2 show where the budget savings come from. Table 3 shows that if all the Cato recommendations were adopted, federal spending would be reduced from 22 to 17.5 percent of GDP.

Now to get specific. In the area of this Committee’s jurisdiction, the Cato Institute has recommended dozens of program terminations.

The Department of Energy should be eliminated—with its few worthwhile projects transferred to the Departments of Interior and Defense. America does have a highly effective national energy policy. That policy is called the free market. When the government has intervened in energy policy it has almost always worsened the crisis—as with the energy price controls and windfall profits taxes of the 1970s. There is no case for government sponsored energy conservation programs. The price system creates exactly the proper amount of business and consumer conservation efforts.

The primary rationale for abolishing the Department of Energy—in addition to saving money—is to eliminate the policy and bureaucratic apparatus to prevent future government interventions into energy policy. That is, the DOE should be closed down to preclude it from doing more damage.

Within the Department of Energy the following specific programs and projects should be terminated:

Nuclear reactor R&D

Energy conservation programs

Power Marketing Administration subsidies

General Science and Research activities

Uranium supply and enrichment activities

Fossil energy research & Development

Naval Petroleum Reserves (privatize)

Strategic Petroleum Reserve (privatize)

Energy Information Administration

Clean Coal Technology

Solar and Renewable Energy programs

New Generation of Vehicles

Defense Reinvestment and Conversion

High performance computing and communications

In the area of Interior, the following programs should be ended:

Bureau of Reclamation water projects

National Biological Survey

Bureau of Mines

Helium fund and reserves (privatize)

African Elephant Conservation Fund

Sport Fish Restoration Fund

Another area of interest to this Committee is the cultural activities of the federal government. The Cato Institute has recently published a study calling for the removal of the federal government from many of the arts and culture programs that now receive federal subsidy. I would be happy to make that available to the members of the committee.

We urge Congress to privatize the National Endowment for the Arts and the National Endowment for the Humanities. It is our view that arts and culture play a vital role in society, but that there is no rationale for government financing of such activities. There are several reasons why they should be particular targets for privatization:

1) Studies show that the clientele for most arts and culture programs are those with high or above average incomes. The NEA has been called “high-brow pork-barrel. Americans who benefit from these programs can afford to pay for them.

2) The highly controversial nature of many of the NEA projects and NEH curriculum is offensive to many Americans. Taxpayers should not be compelled to pay for them even though they do not huge price tags.

3) NEA, NEH, and other such programs have had the unfortunate and unavoidable effect of politicizing our culture. Issues of free speech and free expression dissolve if all art is privately funded.

4) Most importantly, even if NEH and NEA were funding wholesome conservative programs that the vast majority of Americans support, these agencies would be inappropriate. Taxpayer subsidies of the arts and culture lay outside the range of proper functions of the federal government. Where, after all, in the Constitution is Congress granted the authority to subsidize the arts? The authority to subsidize art is not one of the enumerated powers granted to Congress.

Thank you, Mr. Chairman, for the opportunity to present my views on how to cut federal spending.

                            TABLE 1

                  The Cato Budget Alternative

                              Fiscal Year
                        95   96   97   98   99  2000
  Defense              269  260  250  235  220  200
  Social Security      333  349  365  382  400  404
  Medical              269  282  304  329  355  372
  International         20   18   16   14   12   10
  Other                486  471  471  471  471  471
                      ____ ____ ____ ____ ____ ____
Total                 1377 1380 1406 1431 1458 1457

Deposit insurance      -17  -12   -5   -5   -4   -2
Offsetting receipts    -77  -72  -75  -80  -83  -86
Net interest           225  235  231  228  222  210
Total Outlays         1508 1531 1557 1574 1593 1579

Revenues              1353 1373 1422 1482 1542 1613

Deficits               155  158  136   93   51  -34

* Congressional Budget Office, The Economic and Budget Outlook,
August, 1994.

                            TABLE 2

Cato's Proposed Budget Savings (Billions of Dollars)
Fiscal Year             95   96   97   98   99  2000
Defense                  4   17   33   56   78   98
Social Security          0    1    3    6    8   16
Medical                  4   21   33   44   59   68
International            1    3    6    8   11   14
Other Domestic           7   26   30   34   59  115
Net interest             1   10   22   36   55   80
                      ____ ____ ____ ____ ____ ____
Total                   17   78  127  184  270  391

Assumptions for savings:

Defense spending: 3 percent sequester for second half of 1995; an
additional 3 percent sequester for 1996 then reduced to $200
billion by 2000, 2.5 percent of GDP.

Social Security: Retirement age raised and benefit formula

Medical: 5 percent sequester for second half of 1995 then cost
control measures outlined above reduce inflation rate from 10 to 8

Other domestic: 5 percent sequester for second half of FY1995 then
spending freezed at 1995 level through 2000.  Spending cuts to
comply with cap as detailed in text above. 

International Affairs: Elimination of all foreign aid programs; an
overall 60 percent reduction in international affairs

Net Interest: Interest rate savings from deficit reduction
assuming a 6 percent interest rate on federal treasury notes and
from sale of $100 billion of federal assets.

                         TABLE 3

The Burden of Taxes and Spending Under Cato Budget Alternative
                        (% of GDP)
Fiscal Year      94    95    96    97    98    99    2000

Outlays        22.2  21.3  20.6  20.0  19.2  18.6    17.5

  Defense       4.2   3.8   3.5   3.2   2.9   2.6     2.3   
  Domestic     15.0  14.3  13.9  13.8  13.5  13.4    12.8 
  Net Interest  3.0   3.2   3.2   3.0   2.8   2.6     2.4

Revenues       19.0  19.0  18.5  18.2  18.1  18.0    17.9

Deficit         3.2   2.3   2.1   1.8   1.1   0.6    -0.4

Subcommittee on Interior and Related Agencies
Committee on Appropriations
United States House of Representatives