Spending (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 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.” Thus, for example, New Zealand greatly reduced its government spending in the 1990s. Speech by Maurice McTigue to the RMLC,
May 2001.

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, as presidential power to veto elements of Congressional authorizations would require a Constitutional amendment.

Then there are “pay go” rules, which requires that any spending increase or tax cut be “paid for” by offsetting changes in the budget. Sounds OK in theory, but the usual result in practice is to promote a quest for tax increases to cover the cost of desired spending increases. See, e.g., The urge to raise taxes is alive and well, 6/22/15.

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