Mr. Chairman, I am honored to have the opportunity to discussthe Cato Institute's ideas for reducing federal spending in thearea of the Department of Interior, the Department of Energy andrelated agencies.
Later this month the Cato Institute will release a comprehensivebudget plan that outlines how the federal budget could be balancedby the year 2000 without new taxes. Indeed, the Cato Institute planwould balance the budget and allow for $400 billion of tax cuts--ormore than twice what the GOP Contract with America calls for. Ourbudget plan would reduce federal spending by $1 trillion over fiveyears--that is it would reduce five year spending from $9 trilliondown to $8 trillion. This is a far more ambitious agenda than whatwould be required under the balanced budget amendment now beingdebated.
I know that this committee is most interested in our specificrecommendations with respect to the spending program's under yourjurisdiction, but I would like to briefly tell you of the broadfiscal strategy we have developed.
There are eight components to the Cato budget plan:
1) A 4.5 percent across-the-board rescission in all federalprograms except Social Security for the second half of 1995 throughthe end of FY 1996. The centerpiece to any credible plan to reducethe deficit is to pull forward the hard choices. The more commonpractice of extending budget caps continually out in the future, ashas been the Bush-Clinton approach for the past six years, deferstough decisions that never seem to be made. The Congress mustshowcase its commitment to long term fiscal restraint by cuttingspending immediately--that is cuts from the already approved 1995budget.
2) The termination of more than 100 federal programs andagencies--a large number of which fall under this subcommittee'sjurisdiction.
3) A reduction in the defense budget to $200 billion by the year2000 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 assignificantly raising the retirement age, with the eventual goal ofprivatizing the program.
6) A series of health care reforms, including cost sharing andMedical Savings Accounts, to reduce the inflation in Medicare andMedicaid.
7) A plan to end the federal government's failed role in welfareby turning all public assistance programs over to the states andprivate charities.
8) The sale of at least $200 billion worth ofnon-environmentally sensitive federal lands and other federalassets with the proceeds used to reduce interest on the nationaldebt.
The Cato Institute budget would dramatically reverse the growthof government that has occured over the past quarter century.Tables 1 and 2 show where the budget savings come from. Table 3shows that if all the Cato recommendations were adopted, federalspending would be reduced from 22 to 17.5 percent of GDP.
Now to get specific. In the area of this Committee'sjurisdiction, the Cato Institute has recommended dozens of programterminations.
The Department of Energy should be eliminated--with its fewworthwhile projects transferred to the Departments of Interior andDefense. America does have a highly effective national energypolicy. That policy is called the free market. When the governmenthas intervened in energy policy it has almost always worsened thecrisis--as with the energy price controls and windfall profitstaxes of the 1970s. There is no case for government sponsoredenergy conservation programs. The price system creates exactly theproper amount of business and consumer conservation efforts.
The primary rationale for abolishing the Department ofEnergy--in addition to saving money--is to eliminate the policy andbureaucratic apparatus to prevent future government interventionsinto energy policy. That is, the DOE should be closed down topreclude it from doing more damage.
Within the Department of Energy the following specific programsand 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 beended:
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 culturalactivities of the federal government. The Cato Institute hasrecently published a study calling for the removal of the federalgovernment from many of the arts and culture programs that nowreceive federal subsidy. I would be happy to make that available tothe members of the committee.
We urge Congress to privatize the National Endowment for theArts and the National Endowment for the Humanities. It is our viewthat arts and culture play a vital role in society, but that thereis no rationale for government financing of such activities. Thereare several reasons why they should be particular targets forprivatization:
1) Studies show that the clientele for most arts and cultureprograms are those with high or above average incomes. The NEA hasbeen called "high-brow pork-barrel. Americans who benefit fromthese programs can afford to pay for them.
2) The highly controversial nature of many of the NEA projectsand NEH curriculum is offensive to many Americans. Taxpayers shouldnot be compelled to pay for them even though they do not huge pricetags.
3) NEA, NEH, and other such programs have had the unfortunateand unavoidable effect of politicizing our culture. Issues of freespeech and free expression dissolve if all art is privatelyfunded.
4) Most importantly, even if NEH and NEA were funding wholesomeconservative programs that the vast majority of Americans support,these agencies would be inappropriate. Taxpayer subsidies of thearts and culture lay outside the range of proper functions of thefederal government. Where, after all, in the Constitution isCongress granted the authority to subsidize the arts? The authorityto subsidize art is not one of the enumerated powers granted toCongress.
Thank you, Mr. Chairman, for the opportunity to present my viewson how to cut federal spending.
TABLE 1 The Cato Budget Alternative Fiscal Year 95 96 97 98 99 2000___________________________________________________________OutlaysPrograms 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 1457Deposit insurance -17 -12 -5 -5 -4 -2Offsetting receipts -77 -72 -75 -80 -83 -86Net interest 225 235 231 228 222 210Total Outlays 1508 1531 1557 1574 1593 1579Revenues 1353 1373 1422 1482 1542 1613Deficits 155 158 136 93 51 -34* Congressional Budget Office, The Economic and Budget Outlook,August, 1994.____________________________________________________
TABLE 2Cato's Proposed Budget Savings (Billions of Dollars)___________________________________________________________Fiscal Year 95 96 97 98 99 2000___________________________________________________________Defense 4 17 33 56 78 98Social Security 0 1 3 6 8 16Medical 4 21 33 44 59 68International 1 3 6 8 11 14Other Domestic 7 26 30 34 59 115Net 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; anadditional 3 percent sequester for 1996 then reduced to $200billion by 2000, 2.5 percent of GDP.Social Security: Retirement age raised and benefit formulaindexed.Medical: 5 percent sequester for second half of 1995 then costcontrol measures outlined above reduce inflation rate from 10 to 8percent.Other domestic: 5 percent sequester for second half of FY1995 thenspending freezed at 1995 level through 2000. Spending cuts tocomply with cap as detailed in text above. International Affairs: Elimination of all foreign aid programs; anoverall 60 percent reduction in international affairsappropriations. Net Interest: Interest rate savings from deficit reductionassuming a 6 percent interest rate on federal treasury notes andfrom sale of $100 billion of federal assets. TABLE 3The 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 2.4Revenues 19.0 19.0 18.5 18.2 18.1 18.0 17.9Deficit 3.2 2.3 2.1 1.8 1.1 0.6 -0.4