Budget discipline

The policy changes that SAFE advocates for healthcare, energy and education (see applicable pages of this Website) would go a long way towards closing the government’s widening fiscal gap. There are opportunities to economize in many other areas as well.

Effective cost cutting requires a two-pronged approach: (a) slash the dead wood, and (b) tighten up budget procedures.

Where to cut – Unnecessary government programs should be eliminated, such as agricultural subsidies, “corporate welfare,” and tax credits for favored industries.  These programs do not serve the interests of the general public, nor do the beneficiaries need government support.  Agricultural subsidies primarily benefit big agribusinesses and wealthy landowners, for example, while driving up food prices for all Americans.

Another problem is duplication.  Federal programs often have overlapping objectives, resulting in turf wars and/or unnecessary costs to ensure coordination, e.g., several different agencies have been involved in water resources development.  The solution is to pick the best programs and terminate the rest.

Federal grant programs should be eliminated, with the functions involved being left to state & local governments or the private sector. Some $426 billion in federal grants were paid in 2005, ranging from $186 billion for the federal share of Medicaid and the $71 billon cost of the Department of Education (mostly grants) to 50 different grant programs for the homeless in eight federal agencies.

What is wrong with grant programs?  They encourage overspending for the stated grant purposes, foster the growth of federal, state and local bureaucracies to document compliance with federal mandates, and reduce the flexibility and innovation of recipients.  For an in-depth discussion, see Downsizing the Federal Government, Chris Edwards, Cato Institute (2005).

The main obstacle to implementing these ideas would be mustering the political will to take action, which would be tough but not necessarily “impossible.” New Zealand halved its government spending in the 1990s!  To learn how they did it, download this entertaining and inspiring audiotape (3 segments, 1.25 hours including Q&A) by Maurice McTigue (Mercatus Center). Enjoy the tape and share it with your family and friends. McTigue1, McTigue2, McTigue3. (.WAV files, compatible with Windows XP and Mac OS X).

Budget Procedures - A balanced budget amendment to the Constitution, either prohibiting deficit spending except in time of declared war or requiring a 2/3 majority to approve deficit spending in any given year, would be a tremendous help – if it could be adopted.

Giving the president a “line item” veto could be modestly helpful as a means of cutting pet Congressional projects (or “earmarks”) out of the budget.  The ideal approach would be to restore the president’s impoundment authority, since presidential power to veto elements of Congressional authorizations would require a Constitutional amendment.

Another possibility is a “pay go” rule that would require that any spending increase or tax cut be “paid for” by offsetting changes in the budget.  Such rules have proven only moderately effective in the past, however, and if overall budget control is maintained they serve no real purpose.

Blog entries

7/5/10 – Fiscal Commission update

6/28/10  - And never the twain shall meet: the Left/Right divide.

6/21/10 – The plan now, act later approach is a nonstarter.

5/24/10  – Fiscal Commission update: off to a somewhat promising start

5/17/10 – Greek debt crisis: a double-edged sword

4/26/10 – Fiscal Commission lifts off this week, but where is it headed?

4/19/10 – I.O.U.S.A. Solutions: a not so subtle pitch for raising taxes

2/22/10 – Here goes nothing: some thoughts about the Fiscal Commission

2/15/10 – Don’t just stand there, do something constructive

2/8/10 – Sorry, but the budget was dead on arrival.

1/4/10  – The wrong way to defuse the debt bomb

8/31/09 – If you can’t hear what we hear, you aren’t listening.

4/27/09 – Delaware’s fiscal situation: a case study

3/16/09 – A tale of two summits [re fiscal responsibility and healthcare, respectively]

3/2/09 – The young and the reckless

2/9/09 – Looking ahead to the Fiscal Responsibility Summit

2/2/09 – Economic stimulus package: what’s the rush?

1/12/09 – Madoff writ large

1/5/09 – Some call it stimulus; we call it pork

12/1/08 – Once again, this time in plain English

11/24/08 – First things first: time to clean up the fiscal mess

11/10/08 – Election over: now what?

10/27/08 – What would you like, central planning or an eclectic mix?

9/1/08 – Not another one: the first “economic stimulus package” was bad enough

6/16/08 – To win “Budget Hero,” raise taxes.

5/19/08 – Strategies to cut government spending

3/3/08 – Connecting the dots: earmarks matter, and words also.

2/18/08 – Let’s hear it for real change!

2/4/08 – State of the budget: the road ahead

1/28/08 – State of the budget: a 40-year slump

1/7/08 – Cut the pork; earmarks need to go.

12/17/07 – Government spending: what crackdown?

12/3/07 – Learning from experience: why government programs fail

10/1/07 – Enough already with government grants!

9/10/07 – The coming fiscal storm: an historical perspective

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