Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

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September 22, 2009

Why Federal Government Spending Will Never Be Cut

by Kevin

Economist Bruce Bartlett had a column in Forbes outlining why he thinks spending won’t be cut.

Every time I write about the need to raise revenues to pay for federal spending, some nitwit always demands to know why we don’t just cut spending. That is not a viable option to deal with our fiscal problem.

The first point that people need to understand is that we live in a democracy. We don’t have a dictator who can just wave his hand and abolish government programs. We have a president who may propose spending cuts, but before they take effect he must get agreement from both the House of Representatives and Senate, both of which may be controlled by a different party. Congress’ efforts to cut spending on its own are futile without prior agreement from the president to support them, as Republicans found out the hard way in 1995.

Direct presidential control over spending is extremely limited. By law, he must spend every dollar appropriated by Congress. And presidents have no control at all over three-fifths of the budget devoted to interest on the debt and entitlement programs–those like Medicare for which spending is automatic. Even Congress can’t reduce spending for entitlements unless it changes the law governing eligibility and programmatic operations.

So 60% of the Federal budget cannot be touched in the budget process. The national debt must continue to be serviced and entitlements (ie. Social Security and Medicare) can only be touched by changing eligibility and the actual operations and only as stand alone legislation for the most part. So what about cutting the other 40%? Won’t work…

Looking at last year’s budget, only 38% was classified as discretionary; that is, under Congress’s control through the appropriations process. All the rest was mandatory: entitlements and interest on the debt. Within the discretionary category, 54% went to national defense. Just $37.5 billion, 3.3% of the discretionary budget, went for international affairs including foreign aid. Over the years I have encountered many conservatives who thought that abolishing foreign aid was just about the only thing needed to balance the budget. Obviously, that’s nonsense.

Domestic discretionary spending amounted to $485 billion last year. With a deficit last year of $459 billion, we would have had to abolish virtually every single domestic program to have achieved budget balance. That means every penny spent on housing, education, agriculture, highway construction and maintenance, border patrols, air traffic control, the FBI, and every other thing one can think of outside of national defense, Social Security and Medicare.

Obviously that will never happen because most of the above programs have a constituency that supports them.

Bartlett also points out that it would help the situation if some of the proponents of budget cuts knew what the hell they were talking about:

Many of those favoring budget cuts have ridiculous notions about how much of the budget can be cut without reducing services. A recent Gallup poll found that Americans generally believe that 50% of the budget is wasted. This suggests that they believe the federal budget could be cut in half without cutting anything important like Social Security benefits or national defense.

Just so people know the round numbers, total spending this year is about $3.6 trillion. At most, $200 billion of that represents stimulus spending, so even if there had been no stimulus bill and the economy had done as well as it has done, we would be looking at a $3.4 trillion budget.

Revenues are only about $2.1 trillion, so we would be looking at a substantial deficit even if the stimulus package was never enacted. Revenues would be even lower if Republicans had gotten their wish and the stimulus consisted entirely of tax cuts. How tax cuts would help people with no wages because they have no jobs or businesses with no profits to tax was never explained. But many right-wingers are convinced that tax cuts are the only appropriate governmental response no matter what the problem is.

It would also help matter if Republicans weren’t hypocrites:

This means that it is impossible to get control of spending without cutting entitlement programs. Many Republicans agree, but they never make any serious effort to do so. On the contrary, they defend entitlements when Democrats suggest cutting them. The Republican National Committee has run television ads opposing cuts in Medicare because Obama proposed using such cuts to fund health reform. Many demonstrators at right-wing tea parties were seen carrying signs demanding that the government keep its hands off Medicare.

Last year, we spent $456 billion on Medicare, and it is the fastest growing major government program. How likely is it that the people protesting Obama’s Medicare cuts will stand with Republicans if they propose cutting that program even more to balance the budget? They will switch sides in an instant. The elderly will fight anyone who tries to cut their benefits even as they hypocritically demand fiscal responsibility and rant about the national debt. The elderly are the reason why we have a national debt.

As for the great spending cutters Ronald Reagan and Margaret Thatcher, well not so much:

When I raised these facts with a prominent Republican recently, he countered that Reagan had cut spending. But he didn’t. Spending rose from 21.7% of the gross domestic product in 1980 to 23.5% in 1983 before declining to 21.2% in 1988. And that improvement came about largely because favorable demographics caused entitlement spending to temporarily decline from 11.9% of GDP in 1983 to 10.1% in 1988. (Last year it was 12.5% of GDP.)

When I noted these facts, my friend pointed to British Prime Minister Margaret Thatcher as someone who showed that spending could be slashed. But she raised spending from 42.4% of GDP when she took office in 1979 to 46% of GDP in 1985. Only in her last years in office was spending cut to 38% of GDP. But keep in mind that Thatcher was in office for 10 years, longer than a U.S. president may serve, and had compete control of Parliament the whole time–something Reagan could only dream about.

Since it is not politically possible to cut Federal spending there are only three choices, from the argument laid out in the article:

A) Raise taxes massively which would likely crush the American economy and continue to perpetuate the cycle of government growth consuming resources out of the private sector.

B) Default on the national debt causing a national and global economic collapse.

C) Continue the current cycle of bread and circuses of spending and spending more until options A and B come due.

However, I see Bartlett’s argument as too defeatist in nature.

Neither of the three options is pleasant and fortunately, we don’t have to choose between the three but that requires the American people and politicians making hard choices (which they don’t seem to know how to make).

Solving the long term financial crisis that will lead to national bankruptcy will take a grand bargain of sorts where every political faction will get some of what they want but will have to swallow some things they don’t.

The left will have to swallow budget cuts to social welfare programs but they will applaud the tax increases that will be needed overall.

The right will have to swallow defense cuts and higher taxes but they will applaud overall budget decreases.

Libertarians will have to swallow a government not quite as small as they want and higher taxes but will applaud a shrunken Federal government both in size and scope both at home and abroad.

Populists will not like any of this because populism whether it be right-wing populism, left-wing populism, or even libertarian populism is predicated on the concept of having one’s cake and eating it too. Populism is generally anti-intellectual and solving the serious long-term financial problems of this nation will take more than a slogan or a media celebrity. I don’t see a role for populists in solving this nation’s problems because they are generally the cause of them.

Over the coming weeks, I will lay out what I see as the ingredients of the great political grand bargain that will be needed to avert national bankruptcy.

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4 Comments

  1. People talk about medicare and social security as they are something completely unrelated to the rest of the budget, and completely untouchable. Why can’t we cut spending on these? Congress has the power to alter the legislation upon which they operates. The minimum age for medicare and social security should be raised, they are just avoiding the issue because doing so would make them look bad to the old people who vote.

    Comment by Peter — September 23, 2009 @ 7:16 am
  2. It’s not gov’t spending that bothers me.

    It’s gov’t STEALING that bothers me.

    Hell, everybody likes to spend, but here in the private sector we don’t get to go out and steal the money we like to spend, so we are automatically limited in the amount we get to spend.

    Wanna stop gov’t spending?
    Then stop gov’t stealing, period.

    Spending isn’t wrong.
    Stealing is wrong, this is an axiom.

    Comment by Don — September 23, 2009 @ 9:06 am
  3. “The minimum age for medicare and social security should be raised, they are just avoiding the issue because doing so would make them look bad to the old people who vote.”

    You just hit the nail right on the head, so I don’t know why you’re asking. The elderly are among most vocal and the highest-voting demographic. And now they feel entitled, because after all, they’ve been paying taxes and into SS for 40-odd years and now they want their piece of it.

    Comment by SC — September 23, 2009 @ 12:05 pm
  4. Regarding entilements…this blue head agrees that a lot us are very protective of them. That’s the way we grew up, being told to work hard and save. SS was to be asupplemental to what whatever we managed to save and invest for retirement. The problem started when Congress started spending like it was part of their budget, not something to be put away in the mythical lock box. Finally….if you cut defense or welfare spending, why do you have to raise taxes?

    Comment by angus — September 24, 2009 @ 11:44 am

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