Sunday, February 14, 2010

Butchering the budget

During the campaign, John McCain proposed an across the board spending freeze on all Federal programs except the Department of Defense, veterans programs, and entitlements. Barack Obama responded that McCain’s proposal amount to "using a hatchet where you need a scalpel." Now President Obama is proposing a spending freeze. His Administration argues it is still a scalpel because the freezes will be targeted; some programs will increase will others will decrease, thus freezing the level of spending without freezing where the spending goes.

I don’t have any argument with the Obama Administration’s claims. They are quite correct that it is possible to have a targeted spending freeze in which you leave alone or increase funding for programs you believe are valuable while decreasing funding for programs you believe are not valuable. They clearly understand logic. They also clearly do not understand the politics behind the government’s inability to control spending.

I’m pretty sure the reason McCain proposed an across the board spending freeze was because he knew that once you get into the details of which programs are valuable and which programs are not, suddenly somehow every single penny being spent is absolutely crucial. It’s going to be very, very difficult for the Obama Administration to identify any programs that have no enthusiasts. At a bare minimum, it’s a pretty safe bet that someone’s salary is being paid by every Federal program and if the program is big enough so that cutting it will actually help our bottom line, then probably a lot of somebodies’ salaries are being paid by it.

Plus, I suspect that most Federal programs do benefit some group. It may be a group the Administration thinks doesn’t need support or a group the Administration thinks doesn’t deserve support but it’s awfully easy to make a heart-wrenching argument for the value of almost any Federal program in existence. Someone, somewhere is going to be hurt by any Federal spending decreases and once those who will be hurt are paraded in front of television cameras, there’s a good chance there will be a collective, “Aw, why are you picking on them?” from a lot of people. It’s easy to see that cutting funding for swine research will hurt those decent, hard-working Iowa farmers; it’s a lot harder to see that keeping funding for swine research means money out of everyone’s pocket, money we could all use to buy bacon.

President Obama had hoped to address the problem of government spending another way. He wanted Congress to pass a bill establishing a Bipartisan Task Force to consider tax increases and spending cuts. The recommendations of such a Task Force would then be presented to Congress for a simple up or down vote. The Senate declined; as far as I can tell, the House never considered it. Despite what I have occasionally read and heard from the Left, the Senate’s declination was bipartisan: 36 Democrats, 16 Republicans, and 1 Independent voted for the bill; 22 Democrats, 23 Republicans, and 1 Independent voted against the bill.

Even if the Task Force had come into being, I’m not sure how much good it would have done. The fights over which programs are too valuable to cut would simply have moved into the Task Force deliberations and, as far as I can tell, there would have been no requirement that the Task Force recommend any spending cuts or tax increases at all, much less substantial ones. It would have been far too easy for the Task Force members to either come up with extremely minor cosmetic recommendations or just throw up their hands, declare they couldn’t get anything done, and blame the other side.

What we need is something to concentrate everyone’s mind. Here’s what I propose. Let’s pass a bill that says we’re going to cut Federal spending by 10% each year until we’re spending 50% of what we’re spending now. We’ll hit about 53% in the seventh year. If we decrease spending by 5% the eighth year, we’ll hit just about 50%.

We’ll also adjust Federal tax revenues in lockstep but at a slightly lower rate: 9% per year. By the seventh year, the Federal government will be taking in not quite 57% of what it is taking in now. If we decrease taxes by 4.5% the eighth year, Federal tax revenues will be just about 54% of what they were when we started.

We’ll be taking in more than we’re spending which will let us start to pay down our debt. The money no longer being taken by the Federal government in taxes can certainly be taken in taxes by the States or by local governments if their residents want to continue to receive the same government services they used to get from the Federal government. Otherwise, it’s money in the pockets of individuals and corporations.

What spending and taxes will we cut? Well, that’s up to Congress to decide. If they want, they can cut the whole 10% of spending from a single program. They can decide to cut nothing from Defense and everything from Education - or vice versa. That’s up to them. However, if they don’t make those decisions then the cuts happen across the board. And I mean the whole board, including Defense, veterans’ benefits, Social Security, Medicare, agriculture subsidies, public health, everything. Nothing is shielded.

The same rules hold for tax cuts. Congress can give the entire tax cut to individuals with lower incomes or to corporations or to the middle class. However, if Congress cannot decide how to allocate the tax cuts then every person and every corporation gets a 10% reduction in their taxes - all their taxes including those for Social Security and Medicare. The taxes get calculated just that way too, no fiddling with tax rates. The first year we all calculate our taxes under the existing tables, then take 9% off whatever we owe the government. The second year, we do the same calculations and take 17% off what we owe the government. And so on.

It would be great to trim the Federal government’s fat with a scalpel. But if the surgeon doesn’t have the guts to operate, better a butcher with a hatchet than letting the country die from its own gluttony.

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