The historical federal spending of the government has already done significant damage to America; spending habits have increased the federal budget deficit at alarming rates adding $2. 7 trillion to the national debt in two years, $1. 4 trillion in the 2009 fiscal year and $1. 3 trillion in 2010. (Montgomery) These deficits are largely caused by increases in spending rates. The current Obama Administration has used the recession in their favor to expand both the government and spending.
America has not seen deficits of this nature since World War II with spending levels reaching 25% of the GDP and deficits reaching 10% of the GDP. And, even when this recession comes to an end, estimates show that annual deficits will continue to surpass the $1 trillion mark, and this could result in a myriad of adverse effects ranging from high interest rates to tax increases.
Currently, federal spending per household, which has increased from $25,000 to $31,000 since 2008, is estimated to reach $36,000 by 2020 under the Obama Administration, and if spending increases at this rate, by default, so too will taxes. (“US Census Bureau”) Even with his proposed tax increases estimated to allocate $3 trillion in taxes, President Obama’s budget would double the current national debt by 2020 to more than $20 trillion or $138,000 per household. Clearly, government spending is a significant contributing factor to the deficit and to the national debt.
Entitlement programs like Social Security, Medicare, and Medicaid will continue to increase the deficit, but in order to continue to promote economic growth; Congress must put spending cuts into action. Policymakers shouldn’t think of spending cuts as a necessary evil needed to reduce debt. Rather, the government’s fiscal mess is an opportunity to make reforms that would spur growth and expand individual freedom. The plan below includes a menu of spending cut options for Congress, and further reforms are described at www.
DownsizingGovernment. org. Though there have been many contributing factors to the current deficit, research says that the Bush Administration policies contribute to 40% of the 2009 and 2010 fiscal year damage. The Bush tax cuts took away an estimated of $231 billion in government revenue in 2009, and because of the federal debt added by President Bush, the government paid an additional $218 billion in interest in 2009 as well; researches claim that without the Bush tax cuts, the deficit would have been 4. % of the GDP rather than 11. 2% in 2009 and only 3. 2% instead of 9. 6% in 2010. In addition to his tax cuts, President Bush’s fiscal irresponsibility has largely contributed to the current economic crisis. President Obama, too, has contributed to the federal deficit. While only making a 16% dent in the 2009 and 2010 fiscal year damage, his American Recovery and Reinvestment Act, that was supposed to improve the economy, has turned out to be the largest factor in public spending during his time in office.
Even so, President Bush has contributed approximately $2386 billion while President Obama has only done $722 billion in damage. Regardless of who’s to blame, researchers agree that the deficit is an issue that needs to be dealt with through cuts in spending and rapid reform. Solutions for Decreased Spending In an attempt to decrease spending and discontinue contributing to the deficit, there have been some proposed solutions for Congress to put into action. The first is the enactment of spending caps.
Since Congress does not have any spending restrictions, discretionary spending has doubled since spending caps expired in 2002 and entitlement spending has continued to increase exponentially each year. Because of this, Congress needs to implement spending caps to help set priorities and expel unnecessary spending on a yearly basis; Congress should enact strong spending caps on government spending so as to keep the budget in order and make sure that spending is not taken lightly. The second proposed solution is to stop spending more and more because of the current recession.
This resolve aims to eliminate irresponsible federal spending by repealing stimulus funds that have done nothing in the creation of jobs, and that any money being spent to assist the unemployed, should be offset by spending cuts in other areas of the budge, and lastly, that ObamaCare should be repealed because of its severely harmful effects on the deficit. The Obama Administration alone has added billions in new federal spending and though their aim was to improve the economy, their recessionary spending has done nothing but add to the deficit.
In addition to cutting administration spending and enacting spending caps, programs like Medicare, Medicaid, and Social Security, which are responsible for a large dent in the deficit, need to be reformed. While still offering all of these programs, the government needs to find new ways to offer them without putting the country into even more debt on an annual basis; controlling entitlement programs would have a positive effect on the national deficit. Lastly, cutting military expenses and getting troops out of other countries. Solutions
This section illustrates how a reduction in spending could eliminate the federal budget deficit over 10 years. It shows projections of revenues and spending as a share of GDP based on the March 2011 Congressional Budget Office estimates. My projections for revenues assume the extension of the 2001 and 2003 income tax cuts, extension of alternative minimum tax relief, and repeal of the tax increases in the 2010 health care law. My projections for spending adjust the CBO baseline to include more realistic assumptions regarding troop reductions in Iraq and Afghanistan and the extension of the Medicare “doc fix. In Figure 1, the bottom line shows that federal revenues with tax relief in place are expected to rise to 18. 0 percent of GDP by 2021 as the economy recovers and resumes normal growth. The top line shows President Obama’s proposed spending based on his fiscal 2012 budget. As a share of GDP, spending is expected to dip the next few years as funding from the 2009 “stimulus” bill peters out and war costs fall, but spending is expected to start rising again after that. That high spending path would lead to higher taxes, higher debt, or both. Figure 1.
Projected Federal Revenues and Spending Percent of GDP The middle line in the chart shows spending under the balanced budget plan. Under this plan, spending cuts of more than $1 trillion annually by 2021 would be phased in over 10 years. 6 Those cuts would generate substantial interest savings by 2021, and total federal spending would fall to 18. 0 percent of GDP—the same level as federal revenues that year. With those cuts, federal public debt would peak at 75 percent of GDP in 2013 and then fall to 64 percent of GDP by 2021. Spending Cut Details
Table 1 lists the proposed annual cuts for the balanced budget plan. By 2021, these include $150 billion in defense cuts and $490 billion in cuts to Medicare, Medicaid, Social Security, and the 2010 health care law. The table also includes other discretionary and entitlement cuts valued at $445 billion in 2011. With the assumed revenues, all these spending cuts would be saving the government $260 billion in annual interest costs by 2021. All in all, total spending in 2021 under this plan would be about $1. 4 trillion lower than under either the CBO baseline or the president’s budget.
As a technical note, most of the figures in Table 1 are outlays for fiscal 2011 from President Obama’s fiscal 2012 budget. These cuts are expressed in 2011 dollars, but I’ve assumed that the value of these cuts would grow over time at the same rate as discretionary spending in the CBO baseline. The cuts in Table 1 marked with an asterisk are expressed in 2021 dollars and are generally based on CBO estimates. The reforms listed in the table are deeper than the “duplication” and “waste” items often mentioned by federal policymakers, such as earmarks.
The reality is that the nation faces a fiscal emergency, and we need to cut hundreds of billions of dollars of “meat” from federal departments, not just the obvious “fat. ” If the activities to be cut are useful to society, then state governments or private groups should fund them, and those entities would probably be more efficient at doing so. The cuts in Table 1 are illustrative of how to begin getting the federal budget under control. Further reforms are needed in addition to these cuts, particularly structural changes to Medicare.
But the important thing is to start cutting right away because the longer we wait, the deeper the pile of debt we will have to dig out from. Table 1 includes cuts to individual and business subsidies, cuts to state aid, cuts to military expenses, cuts to the growth in entitlement programs, and privatization of federal activities. The sections following the table discuss these various types of cuts, and further analysis of the cuts is available at www. DownsizingGovernment. org. Table 1 Proposed Federal Budget Cuts| Agency and Activity| | Annual Savings| | | | $ billion|
Department of Agriculture| | | | End farm subsidies| | 29. 5| | Cut food subsidies by 50 percent| | 52. 7| | End rural subsidies| | 4. 2| | Total cuts| | 86. 4| Department of Commerce| | | | End telecom subsidies| | 2. 3| | End economic development subsidies| | 0. 6| | Total cuts| | 2. 9| Department of Defense| | | | Enact Preble/Friedman reforms**| | 150. 0| Department of Education| | | | End K-12 education subsidies| | 52. 7| | End student aid and all other programs| | 33. 1| | Total cuts (terminate the department)| | 85. 8| Department of Energy| | | End subsidies for energy efficiency| | 10. 2| | End subsidies for vehicle technologies| | 5. 2| | End the technology loan program| | 1. 2| | End electricity research subsidies| | 2. 0| | End fossil energy research| | 1. 1| | Privatize the power marketing administrations| | 0. 5| | End nuclear energy subsidies| | 0. 6| | Total cuts| | 20. 8| Department of Health and Human Services| | | | Block grant Medicaid and freeze spending**| | 226. 0| | Repeal 2010 health care law**| | 87. 0| | Increase Medicare premiums**| | 39. 8| | Cut non-Medicaid state/local grants by 50%| | 37. | | Cut Medicare payment error rate by 50%| | 28. 6| | Increase Medicare deductibles**| | 12. 6| | Tort reform| | 10. 0| | Total cuts| | 441. 7| Department of Housing and Urban Development| | | | End rental assistance| | 28. 6| | End community development subsidies| | 15. 0| | End public housing subsidies| | 8. 9| | End housing finance and all other programs| | 8. 3| | Total cuts (terminate the department)| | 60. 8| Department of Justice| | | | End state and local grants| | 5. 0| Department of Labor| | | | End employment and training services| | 4. 8| | End Job Corps| | 1. | | End Community Service for Seniors| | 0. 8| | End trade adjustment assistance| | 1. 3| | Total cuts| | 8. 6| Social Security| | | | Price index initial benefits**| | 41. 1| | Raise the normal retirement age**| | 31. 4| | Cut Social Security disability program by 10%| | 13. 2| | Total cuts| | 85. 7| Department of Transportation| | | | End urban transit grants (federal fund savings)| | 5. 8| | Privatize air traffic control (federal fund savings)| | 5. 8| | Privatize Amtrak and end rail subsidies| | 2. 9| | Total cuts| | 14. 5| Department of the Treasury| | | Cut earned income tax credit by 50%| | 22. 5| | End refundable part of child tax credit| | 22. 9| | Total cuts| | 45. 4| Other Savings| | | | Cut federal civilian compensation costs 10%| | 29. 6| | Cut foreign development aid by 50%| | 5. 2| | Cut NASA spending by 50%| | 9. 8| | Privatize the Corps of Engineers (Civil Works)| | 10. 6| | Repeal Davis-Bacon labor rules| | 9. 0| | End EPA state and local grants| | 6. 5| | End foreign military financing| | 5. 4| | End subsidies for the Corp. for Nat. Comm. Srv. | | 0. 6| | End subsidies to the Corp. for Public Broadcasting| | 0. | | End the Neighborhood Reinvestment Corp. | | 0. 2| | Total cuts| | 77. 4| Grand total annual spending cuts| | $1,084. 9| Note: Data items are outlays for fiscal 2011, but items with ** refer to the value of savings in 2021. | Military Expenses Cato Institute defense experts Christopher Preble and Benjamin Friedman have proposed a lengthy list of cuts to U. S. military spending totaling $1. 2 trillion over 10 years. Within 10 years, their proposal would reduce spending by about $150 billion annually, based on a strategy of restraint and reduced intervention abroad.
In proposing their plan, Preble and Friedman argue that the United States would be better off taking a wait-and-see approach to distant threats, while letting friendly nations bear more of the costs of their own defense. They note that U. S. policymakers support many extraneous missions for the military aside from the basic requirement to defend the nation. There is no doubt that America’s military budget is bloated. Even aside from the wars in Iraq and Afghanistan, Department of Defense spending roughly doubled between 2001 and 2011.
The national deficit should certainly be a top priority for Congress. It is the job of Congress to manage the budget and do all they can to reduce the national debt and act quickly on the reformation of the economy. Congress should first identify where the large areas of spending stem from and from there, distinguish areas where spending cuts are possible. While entitlement programs are inevitable, the reformation of programs like Medicare, Medicaid, and Social Security is essential to being able to safely continue to provide these government organizations.
Congress need not only to look at the overarching national debt, but take each fiscal year and reevaluate what they can do to reduce annual spending that will translate into a decreased deficit and more money saved for the government. Given how the last two administrations have spent money, Congress needs to find other areas of spending to cut to offset the immense spending that came from the Bush-era tax cuts, and that is currently resulting from President Obama’s recessionary spending.
The American people are relying on Congress to make good decisions on the current deficit and do their best to not overlook the glaring statistics, but do something to dig the nation out of the large deficit and offer reasonable and attainable spending cuts. Works Cited Montgomery, Lori. “Federal budget deficit to exceed $1. 4 trillion in 2010 and 2011. ” Washington Post 24 July 2010 : n. pag. Web. 10 Mar 2011. “Federal Spending per Household . ” US Census Bureau March 2010: n. pag. Web. 10 Mar 2011 See www. downsizinggovernment. org/defense See www. downsizinggovernment. org/hhs
Congressional Budget Office, “Preliminary Analysis of the President’s Budget for 2012,” March 2011. For these estimates, see Congressional Budget Office, “The Budget and Economic Outlook: Fiscal Years 2011 to 2021,” January 2011, p. 22. For estimates of these adjustments, see Congressional Budget Office, “The Budget and This is the president’s budget as estimated by the CBO. See Congressional Budget Office, “Preliminary Analysis of the President’s Budget for 2012,” March 2011. Economic Outlook: Fiscal Years 2011 to 2021,” January 2011, p. 22. I assume that discretionary spending cuts are phased-in over 10 years, one-tenth each year.
The proposed changes to Medicaid, Medicare, and Social Security would begin right away, but the savings would increase over time. I modeled interest costs using CBO baseline projections regarding interest rates. I adjusted for the fact that public debt is projected to grow faster than indicated by the compounding of annual deficits in coming years. In particular, see Budget of the U. S. Government, Fiscal Year 2012, Analytical Perspectives (Washington: Government Printing Office, February 2011), Table 33-1. See www. cato-at-liberty. org/federal-subsidy-programs-top-2000. And see www. cfda. org.