Category Archives: discretionary spending

How to Control Federal Spending II. A General Approach

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“Life’s tragedy is that we get old too soon and wise too late”

Benjamin Franklin, 1706 – 1790

CaptureThe above chart from the  Congressional Budget Office’s latest budget forecast “Updated Budget Projections: 2014 to 2024” shows very clearly how the public debt (on which we pay interest) has climbed dramatically in the last six years, as a percentage of GDP, and is projected to keep on growing indefinitely.  As the economy improves and interest rates return to normal levels, interest payments on the debt will skyrocket and become a permanent drag on future growth.
In a recent post “How to Control Federal Spending: The Highway Trust Fund” I pointed out that thanks to the Budget Sequester Act from 2011, it is unlikely that the $35 billion Highway Trust Fund, supported by an 18.2 cent per gallon federal gasoline tax, will be supplemented by general government revenue, paid for by increasing the deficit. In other words, discretionary spending is under control at the present time due to the ten year sequester limits.
But this makes up less than 1/3 of the federal budget, the rest being “mandatory” entitlement spending, for such programs as Social Security, Medicare and Medicaid.  This is where the huge projected future growth in overall federal spending comes from and therefore where we need to focus on budget control.  The huge challenge is that the number of Americans who are retired, now about 50 million, is growing rapidly.  Furthermore, older citizens vote in greater proportion than any other age group and don’t want their benefits to be cut. Elected representatives need help to resist the pressure from senior citizens for greater benefits.  Here are two possible ways to provide this help:

  • A Balanced Budget Amendment to the U.S. Constitution. It would have to be flexible enough to allow overrides for emergencies by a supermajority vote, but otherwise it would force Congress to either cut spending or else raise taxes to bring in more revenue. The tradeoff between these two alternatives would create the discipline to make the hard choices required.
  • Term Limits for national office. I would choose 12 year limits for both the Senate and the House of Representatives but other choices are possible. Knowing that one’s time in office is limited will help provide the strength to make the difficult decisions to either cut spending or raise tax revenue. New members of Congress are more independent thinking than the careerists whose main goal is to get reelected.

Either of these two possible changes in the rules would help turn things around.  We need to do something before we have another financial crisis much worse than the last one!

Why Is It So Hard For Congress To Do Its Job?

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In response to the recent budget deal which has already passed the House of Representatives, Taxpayers for Common Sense has issued a new report “Real Savings, Real Deficit Reduction: Relieving Budget Caps with Common Sense Savings in Fiscal Year 2014”, showing how $100 billion could be cut from the federal budget for fiscal 2014, completely offsetting the supposedly onerous cuts required by the sequester.  Here is a summary of what TCS has come up with:
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Of course there are many ways to achieve $100 billion in savings in a single year and this is only one particular way to do it.  But it is a balanced plan making roughly comparable cuts from many different agencies and also including a significant amount of tax expenditure savings.  It would, of course, be much better to also include adjustments to entitlement spending such as Social Security and Medicare.  A big reason for keeping the sequester in place, or offsetting it with equivalent cuts, as TCS is suggesting, is to create more interest in making necessary changes in entitlement programs.
Yet another way of accomplishing the same goal would be to keep the sequester spending levels in place but to give each government agency the authority to rearrange the spending cuts within its only agency.  This is what management should be doing anyway on a routine basis.
It is very disappointing that Congress will not do the job, one way or another, that is required to operate the government on a sound financial basis.  Let’s hope that the voters make big changes in the elections coming up in 2014!

Is a Bad Deal Better Than No Deal At All?

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Beltway insiders are praising the just announced budget deal between the Democrats and the Republicans.  For example, a news analysis in today’s Wall Street Journal, “Accord Is Departure for Capitol”, suggests that budget politics may be changing, getting any deal is very hard, that perhaps bipartisanship isn’t dead in Washington but that there is still unfinished business.  This is a purely euphemistic assessment.   All this deal really does is to let the big spenders off the hook.
What it does is to relax the sequester by $63 billion for the next two years for very little in return.  The $84 billion in new fees over ten years “officially” reduces the deficit by $21 billion but two year’s worth of new fees is just $16.8 billion.  This means that the deficit will actually increase by $46 billion over the next two years.
But the real problem is that the leverage represented by the sequester is being thrown away for the next two years and this sets a bad precedent for the future.  For example, we can now assume that the debt limit will also be raised for two more years in February 2014 because there will no longer be any leverage for bargaining for any other changes.
This in turn means that entitlement reform is for all practical purposes dead for the next two years.  This is the really hard problem to solve.  Big spenders will do anything to avoid dealing with it.  Responsible fiscal conservatives know it must be addressed and need all the help they can muster to get something done.
What happens if the budget deal is not passed by Congress?  It simply means that the sequester remains in effect and that discretionary spending will be $43 billion lower this current budget year than otherwise.  The value of the sequester is to force action on the really thorny issue of reducing entitlement spending.  Let’s preserve it for this purpose and not throw it away for nothing significant in return.
Leaders are supposed to address issues, not walk away from them!

Nowhere to Cut? II. Are You Really Trying?

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The New York Times has a story today, “A Dirty Secret Lurks in the Struggle Over a Fiscal ‘Grand Bargain’”, suggesting that there are really two reasons why the House-Senate Budget Conference Committee, chaired by Representative Paul Ryan and Senator Patty Murray, is unlikely to accomplish very much.  The simple reason is that the Republicans will not support tax increases, on which the Democrats insist, and the Democrats will not support major changes to entitlement programs, on which the Republicans insist.
But the “dirty secret” (according to the NYT) is that Republicans don’t really want to trim either Social Security or Medicare, which many Tea Partiers receive, and Democrats don’t really want to raise taxes on the upper income individuals who support them.  Furthermore, the deficit for 2013 was “only” $680 billion, and is expected to drop further in the next few years, while interest rates are so low that borrowing hundreds of billions of dollars each year is not expensive.  In other words, just kick the can down the road.  Let somebody else worry about the problem in the future.
My previous post “Nowhere to Cut”, based on the report from the Congressional Budget Office, “Options for Reducing the Deficit: 2014 – 2023”, picks 14 possible budget cuts or revenue enhancements out of a total of 103 such items listed.  Just these 14 items alone amount to a savings of $566 billion over ten years, more than enough to offset half of the entire sequester amount.
For example, raising the eligibility age for Medicare to 67 would save $23 billion (over 10 years), using the ‘chained’ CPI to measure inflation for all mandatory programs would save $162 billion, tightening eligibility for food stamps would save $50 billion, taxing carried interest as ordinary income would save $17 billion, limiting highway funding to expected highway revenues would save $65 billion, reducing the size of the federal workforce through attrition would save $43 billion, limiting medical malpractice torts would save $57 billion, and modifying Tricare fees for working-age military retirees would save $71 billion.  Just these eight savings total $456 billion and would offset almost half of the entire sequester.
What is so difficult about making a tradeoff deal like this?  Isn’t this what we send people to Washington to do?

Nowhere to Cut?

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After five years of enormous deficits, our national debt now stands at over $17 trillion.  The only spending restraint that Congress has been able to achieve so far is an approximately one trillion dollar “sequester” over ten years, therefore amounting to about $100 billion per year in spending cuts.  Federal expenditures have actually dropped for two years in a row now so the sequester really does work.  Of course, almost everyone complains about cutting spending in such a “dumb” way.  Why not make intelligent budget cuts by eliminating the least effective programs instead of having to make small percentage cuts in all discretionary spending, good and bad alike?  Well, this really should not be all that difficult to do if Congress would try a little harder.
The Congressional Budget Office has just released a helpful report, “Options for Reducing the Deficit:  2014 to 2023”, which lists 103 ways for either decreasing spending or increasing revenues over the next decade.  Amazingly, enacting all of these proposals would amount to a budget savings of $13 trillion over 10 years, ten times what is required by the sequester!  Here are some examples of what could be done (along with the 10 year savings):

  • Eliminate direct payments to agricultural producers                             $25 billion
  • Increase federal insurance premiums for private pensions                    $5 billion
  • Reduce the amounts of federal pensions                                               $6 billion
  • Tighten eligibility for food stamps                                                          $50 billion
  • Use more accurate measure of inflation for all mandatory programs  $162 billion
  • Replace some military personnel with civilian employees                     $19 billion
  • Limit highway funding to expected highway revenues                           $65 billion
  • Eliminate grants to large and medium sized airports                               $8 billion
  • Eliminate subsidies for Amtrak                                                               $15 billion
  • Reduce the size of the federal workforce through attrition                     $43 billion
  • Tax carried interest as ordinary income                                                 $17 billion
  • Limit medical malpractice torts                                                               $57 billion
  • Raise the age of eligibility for Medicare to 67                                         $23 billion
  • Modify Tricare fees for working-age military retirees                              $71 billion
  • Total                                                                                                      $566 billion

Right here is more than enough to offset half of the sequester.  You don’t like these cuts?  Then replace them with others from the CBO report.  There are lots of options to choose from!