You won–now what? Cut the budget.

How might the new Congress avoid the “do-nothing” trap and prove to the American people that they heard the message and actually provide solutions that limit the growth of government and decrease the federal deficit?

I sat at lunch the other day with a friend, and last weeks election came up. The Republicans won, he said, but so what? Now they actually have to do something. They have to prove that they actually have something to offer other than obstructionism. They’ve got to show they can actually cut the deficit and the federal spending that they campaigned against.

“But how are Republicans going to cut the budget? They’re just as vested in programs and entitlements as the Democrats.”

It’s a fair question. Now that Republicans have a seat at the table, what are some of the public policy options they have available to them? Will they remain a “Party of No” or will they produce solutions that respond to voters’ desires for smaller and more accountable government?

Here are two options.

1.  A “do-nothing” Congress.  There are those out there who would respond to my friend’s assertion that the GOP will only cause grid-lock with “So what? That’s great!” They don’t want Congress to create any new programs or expanding entitlements, at all, and with Congress and the President at loggerheads, a “do-nothing” Congress is a very viable solution for them.  In addition to just preventing the expansion of growth, there is also the idea that after doing so much over the last couple years, the country needs time to digest what Congress has done, to absorb new regulation, and see what works and what doesn’t.
Here’s how Stephen Bainbridge put it, after making a comparison of an anaconda swallowing a deer:

Over the last two years Congress has done more in the way of economic regulation than it had in decades. In many cases, we have no idea how these new laws will work in practice. We know there will be unintended consequences, we just don’t know what they’ll be.

This is the case for Congress to step back and do very little in the way of new economic regulation while the government and the economy digests the changes of the last 2 years. Repeal stuff that we know or learn doesn’t work, when politically possible, but certainly the new House GOP majority needs to keep saying no to new regulations of business

Dave Hoffman, referring specifically to the financial regulation and the health care reform act, adds his two bits:

I am myself still trying to figure out what the 111th Congress did to innovation and entrepreneurship.  Will health care portability enable more small business risk-taking, or will regulatory costs bury main street?  Does Dodd-Frank’s anti-systemic risk and derivative trading apparatus meaningfully increase liquidity and/or transparency, or does it simply drive bad actors into tighter tangles & more shadowy corners.  It seems obviously true to me […]  that very little of Dodd-Frank was empirically tested before its adoption.  Similarly, although health care economics & behavior is a deep and richly mined field, HCR itself is already creating unanticipated effects as the market & consumers react to the unfolding of the State’s new & multi-tentacled regulatory arms.

And, he adds,

It strikes me what business really need over the next two years is certainty. This (nothing more but nothing less) are the rules of the game you will play under.  Good or bad, we’re sticking with it for a while to see what happens.  Take regulatory change off of the table[.]

2.  Slash the Budget. Like cutting back on your junk food intake while preparing for a marathon, cutting the budget will hurt.  But, it’s going to make you faster, leaner, and healthier. And so it will for the American economy.

But where?

How about MEDICARE? Created in 1965 for the nation’s poorest and sickest individuals, the best of intentions went into creating what was then, in 2010 dollars, a $9 billion program. Today, the Department of Health and Human Services has estimated the total cost of Medicaid to top half a trillion dollars and, since states are required to kick in part of the cost, 20% of states’ budgets. Recent studies have even found that in some procedures, Medicare recipients may actually receive worse care than people with no health care insurance at all.

Reform it. Recommends Peter Suderman:

[S}top the matching grant funding process, in which states receive federal money for each Medicaid dollar they spend—creating an incentive for ever greater spending. Instead, the program should be funded by federal block grants indexed to the rising cost of health care. Better yet, scrap the program entirely in favor of a temporary assistance program that doesn’t create long-term dependency. That may sound radical, but the alternative is to perpetuate the ugly and unsustainable status quo, in which we devote ever more resources to a program that fails both taxpayers and patients.

Looking at the inherent incentives in the program and finding ways to decrease the dependency is a great way to start, and I believe can reduce waste, corruption, and inefficiencies. It’s politically touchy, but it could make all the difference.

Limit involvement in foreign wars. “War–what is it good for?” Since the end of World War Two, the United States has been involved in one conflict after another. Without entering into a debate about whether participation in those conflicts was in our interest, the fact remains–they are expensive, they are destructive, and they engender ill-will towards the United States around the world.  Serious consideration should be give to how to decrease US troop levels abroad while still maintaining strategic military superiority world wide. Congressional Budget Office projections for the 2012–2020 costs of the wars Afghanistan and Iraq range from $274 billion to $588 billion, and that includes a draw down from current levels, and that does not include the costs of providing veterans benefits over the next thirty years.

End federal education spending. Why do we have a Department of Education, anyway? It’s common knowledge that no one knows the needs of children better than their parents, and the further educators get from that level of involvement the less useful education policy proves to be. Put it in Washington, D.C., the home of “one size fits all” solutions–like No Child Left Behind–and you can expect that it will be a cost far greater than the return.

Lisa Snell notes that:

The feds’ largest education program, Title I, which costs $16 billion a year, has failed to come anywhere close to its goal of helping disadvantaged kids in high-poverty schools close the achievement gap. Head Start, at $8 billion annually, duplicates many other federal, state, and local early education programs without adding to their effectiveness; a January 2010 gold-standard study by the Department of Health and Human Services found that by first grade not one of more than 114 academic and behavioral tests indicated a reliable, statistically significant effect from participating in Head Start. The $1.2 billion in funding for 21st Century Community Learning Centers that provide after-school care should be eliminated too.

Return education spending to the states. Cut the Department of Education out of the budget, and let states determine what works best.

End defined-benefit contributions. Right now, when the average voter wants to prepare for retirement, they save, often in the form of a 401k. A public employee, on the other hand, gets a pension paid for by the voters. Public employees are making more than ever, on average more than the private sector. So why not save the tax payers a bundle of money down the road and make them pay for their own retirements, too? Why pay them twice–once while they are working and again after they are retired–for work that is already paid above average?

End agricultural subsidies. The Depression ended over seventy years ago, but many of the agricultural subsidies meant to help farmers struggling through it are still in place.

Says Kathrine Mangu-Ward:

Farm subsidies and price supports offer something for people of all political stripes to hate. They distort markets and spark trade wars. They make food staples artificially expensive, while making high-fructose corn syrup—the bogeyman of crunchy parents, foodies, and obesity activists everywhere—artificially cheap. They give farmers incentives to tamper with land that would otherwise be forest or grassland. They encourage inefficient alternative energy programs by artificially lowering the price of corn ethanol compared to solar, wind, and other biomass options. School lunches are jammed full of agricultural surplus goods, interfering with efforts to improve the nutritional value (and simple appeal) of the meals devoured by the nation’s chubby public schoolers.

And the beneficiaries are not small local farmers, either. They are giant corporate conglomerates. They are subsidy that our country no longer needs.

Repeal the Stimulus. Yeah. That’s right. Much of it hasn’t even been spent yet. As of September, $301 billion is still sitting unspent. Rather than waste it on unnecessary spending, let’s save it. “A quick, merciful end to the dysfunctional stimulus program could save as much as $300 billion, taking a sizable chunk out of the projected $1.5 trillion deficit.” Anthony Randazzo.

How’s that for a start?

(h/t to Reason.com where a lot of these ideas can be found in more detail.)

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6 responses to “You won–now what? Cut the budget.

  1. Not all new ideas, but very good ones. Yet, behind every well thought out cut in federal spending is a well entrenched lobbying army paid to keep the money flowing.

  2. The stimulus is necessary, it is supporting critical research and infrastructure which America needs even if we were not in the middle of the great recession – http://www.time.com/time/nation/article/0,8599,2013683,00.html

    Also the budget should not be tackled on the backs of the poor & elderly. The rich have done very well over the last 30 years and they need to pay for the country that has allowed them to be successful. Otherwise ship the wealthy to Somalia and see how successful they are there.

    The department of education does important work and removing it will hurt the states by removing the money that it provides. Schools will be hurt. The very schools that are educating the next generation of workers that businesses need to be successful.

    The reluctance of Republicans to recognize the revenue side of the budget should not be tolerated. Here is my one idea that should be welcomed by everyone.

    A FLAT FAIR TAX paid by everyone (that means the corporations too since they are people now too) with only deduction being charitable and mortgage interest. The tax code is a joke, businesses spend millions a year and armies of accountants trying to avoid their obligation (http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html).

    All income would be taxed the same, no more payroll taxes, no more capital taxes, all income should be taxed the same, that is fair. And the first 35 thousand of everyone’s income is tax free, no taxes, you should pay yourself before the government and all income after 35 thousand is taxed at the same rate. Probably around 35 percent. This tax is fair and it is honest. No more loop holes, only two deductions, why would Republicans not support this?

    • Mr. MarshallUtah (Craig?):

      Thanks for your comments. I appreciate the time you’re taking to think about the problem. I agree that increased revenues would help decrease the deficit in a dramatic way. However, I think you’re missing what it is that government does, or doesn’t do, to increase revenues. Indeed, some of your recommendations actually work to decrease incentives that would increase revenues. As has been famously asserted in our country, business is America’s business, and the bottom line in every business is the bottom line. Most of your recommendations dig into the bottom line without providing a corresponding benefit to increase profits.

      For example, you begin your recommendations with an assertion that has nothing to do with revenues. Research and infrastructure are both important, but today infrastructure spending is being used on sidewalks, parks, and city improvements that have little to do with federal needs. Why not just stop taking that money from the locals and allow the locals to spend it directly? When local communities are taxed less and are required to repair their own sidewalks, just to use an example, they’ll find ways to do it better, cheaper, and with a minimal effect on revenues. Without responsibility for such improvements (because it’s been punted to a federal level), cities will utilize the funds like a Christmas bonus–there’s no additional cost to themselves, even though the reality is that they paid for it, and for sidewalks in other states, without much choice in the matter. On the other hand, if infrastructure is controlled by the sphere that appropriately has purview–interstate highways by the federal government and local roads by states and municipalities–the costs will be better allocated, care will be more efficient and cost effective, and revenues will not be decreased. It’s a more efficient expenditure.

      I agree that the budget should not be tackled on the poor and elderly. But what does that have to do with anything recommended here? Even Medicare reform is not targeted at ending Medicare, but removing waste, dependency by those who do not need the program, and assuring that those who do actually get the benefit they need. Studies have shown that Medicare recipients actually receive worse care than those without any healthcare coverage whatsoever. Does that make sense?

      I’m sure the Department of Education is full of well meaning individuals, but it has yet to prove a benefit to American education. Since it’s inception, American competitiveness has not increased, but has actually fallen behind. States that have improved have done so in spite of it, not because of it. Further, you seem to speak as if the Department of Education had its own revenue sources to provide funding to the states. This conclusion fails to consider where the Department of Education gets its funding in the first place–by taking it from the states. Why not just leave it in the states to do as they wish? Why does it need to be taken and then returned? Anyone who has invested money knows that an investment with no return or profit is not an investment worth making. With the Department of Education failing to make our students better, the Department of Education has failed to prove that it is an investment for our tax dollars. Therefore, it only makes sense that the federal government stops taking money from the states to be provided back to the states through the Department of Education. Let the states keep the money–they can spend it on education as they see fit. And, as a result, businesses will benefit more.

      A flat tax would be a great idea. I support it. However, I think 23 percent would be more appropriate, and it would cover our current federal spending sufficiently to also decrease the federal deficit.

  3. Dan, it’s been a while since I’ve entered the blogosphere, and I must say I am enjoying reading your posts.

    It seems like over the last several years we have not seen eye to eye much, but believe it or not, I agree with most everything in this post. I’ve had many of the same thoughts.

    If you look at what we spend $$ on, the biggest things are defense, social security, medicare and other social programs. If we don’t adress our spending in these areas then we’re ignoring the real problems.

    In addition to reducing foreign wars, we should be looking seriously at the benefits veterans receive…like you said, paying people twice doesn’t make the most sense. We should look at medicare like you say, but also social security. With 10,000 baby boomers a day turning 65, it’s about to become ridiculously impossible to sustain.

    I just don’t have faith in politicians, or Americans in general to look realistically at this problem, and accept the hard truth about how to fix it.

    • Sterfryiv,

      Good to hear from you! I have often wished I could get you to engage more often. You have a keen intellect and often provide sharp insights. We can all learn from your thoughts and observations. And, believe it or not, I think that if we were to sit down and walk through where we both stand, policy by policy, we’d find that we agree more often than not. I think the differences of opinions were often found more in supporting untested and unproven candidates than in real policy differences. If you will forgive me, I believe it was in many respects because I anticipated they would do one thing, and you another. And there is almost always a difference between what a candidate says during the campaign and what he (or she) does when elected. On pure policy, though, I think we would not disagree too much.

      And on that note, I think you are right on your assessment of where America’s fiscal problems are: the major entitlement programs could use serious reform. Economists have been warning for decades that the well intentioned efforts to provide for the well-being of the less wealthy would rewire our culture and choices, and it has. With the expectations that Social Security, Medicare, and Medicaid have created, we’ve seen people save less, spend more on consumer items, and do less to prepare for the future. While there will always be those who sincerely do not have enough, and cannot seem to do anything to change it (as the good book says “the poor you have always with you…”), there are many who are in that grey area between wants and needs, and without the incentives to provide for the future, will choose not to do so. And, the result, individuals will act in their own self interest to maximize their share of government entitlements.

      Can you blame them? it’s in their self-interest. And if Adam Smith has taught us nothing, people will ALWAYS act in their own self interest.

      So I’m curious about your thoughts: how do we tackle social security?

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