Downsizing the Federal Government

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The federal government is headed toward afinancial crisis as a result of chronic overspending,large deficits, and huge future cost increasesin Social Security and Medicare. Social Securityand Medicare would be big fiscal challenges evenif the rest of the government were lean and efficient,but the budget is littered with wasteful andunnecessary programs.

In recent years, mismanagement scandals haveoccurred in many federal agencies, including theArmy Corps of Engineers, the Bureau of IndianAffairs, the Department of Energy, the FederalBureau of Investigation, and the National Aeronauticsand Space Administration. Even the NationalZoo in Washington has recently been shaken byscandal. The $2.3 trillion federal government hassimply become too big for Congress to oversee.

The good news is that Americans do not needsuch a big government. Most federal programs areunconstitutional, unnecessary, actively damaging,or properly the responsibility of state governmentsor the private sector. This study analyzesprograms that could be cut to create annual budgetsavings of $300 billion. If these cuts were phasedin over five years, the budget would be balanced byfiscal year 2009 with all of President Bush's taxcuts in place.

Some reform ideas should be applied throughoutthe government. Business subsidies should beterminated, and commercial activities should beprivatized. Also, federal grants to the states shouldbe scaled back. Currently, a complex array of 716grant programs disgorges more than $400 billionannually to state and local governments, whichbecome strangled in federal regulations. Thatform of "trickle-down" economics is very inefficient.

Such reforms were on the agenda in theReagan administration and in the RepublicanCongress of the mid-1990s. But the need forspending cuts is even more acute today because ofthe large fiscal imbalances that loom from projectedgrowth in entitlement costs. Spending cutswould not just balance the budget; they wouldalso increase individual freedom and expand theeconomy. All federal spending displaces privatespending, but many federal programs activelydamage the economy, cause social ills, despoil theenvironment, or restrict liberty as well.

Given the government's record of mismanagedand damaging programs reviewed in this report,policymakers should be far more skeptical aboutthe government's ability to solve problems withhigher spending.

Chris Edwards

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