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Saturday, September 17, 2005

Cato's Proposed Budget Cuts to Offset Spending on Katrina

Here's White House economic adviser Allan Hubbard:

Katrina recovery costs to raise deficit, CNN/Money:  President Bush's advisers said Friday billions of dollars needed to rebuild New Orleans and the Gulf Coast will be borrowed and will raise the deficit, but Bush still wants to extend tax cuts... "There's no question that the recovery will ... add to the deficit," said White House economic adviser Allan Hubbard, while stressing it is a one-time cost. At the same time, he said, Bush wants to extend tax cuts that were a hallmark of his economic recovery plan but which Democrats would like to end because of the impact on the budget deficit. "The last thing in the world we even need to be thinking about is raising taxes. A strong economy is what is going to pay for rebuilding the affected areas," Hubbard said.

Bush said directly that programs would be cut to pay for the spending (Bernanke too). In case you were wondering what Bush had in mind for cuts to offset spending on Katrina, one possibility is Cato's plan.  Take a close look and see what you think.  Then remember this only covers a third or less of the projected spending for Katrina (62 out of the 200 billion), and less than one sixth of the 400 billion dollar overall deficit projected by Cato.  So, at best, this is only covers a third of the spending on the recovery from the hurricane, but at least we finally have a few cards on the table:

Proposed Budget Cuts to Offset Katrina Spending

Annual savings in $billions

Program Savings Rationale
Farm subsidies: cut in half $10.6 Wasteful and have negative environmental and trade effects
NASA: cut in half $7.9 NASA is obsolete with the arrival of private manned space flight
Energy research and subsidies $6.2 Private sector responsibility
Subsidies to airports $5.8 Airports should be privatized as in dozens of major foreign cities
Community development grants $5.4 Projects such as parking lots and sidewalks are a local responsibility
USAID (foreign aid) $4.7 Duplicates Bush Millennium Challenge Corporation foreign aid agency
Army Corps of Engineers $4.6 Civilian activities should be privatized or devolved to the states
Homeland security grants $4.2 Homeland security grants to states have been mired in scandal
Foreign economic aid $2.7 Foreign economic aid does not work
Rural subsidies $2.5 Wasteful and unfair to urban taxpayers
Bureau of Indian Affairs $2.4 BIA is scandal-plagued. Tribes earn $19 billion annually from gambling
Davis-Bacon Act: repeal $2.0 Repeal Davis-Bacon and the Service Contract Act to cut federal costs
Air traffic control $1.6 "Privatize air traffic control as in Canada and Britain"
Trade adjustment assistance $1.0 Unneeded giveaway that is in addition to unemployment insurance
Amtrak $0.4 Privatize the rail system
Total $62
Source: Chris Edwards and Stephen Slivinski, Cato Institute, based on Budget of the U.S. Government, FY2006.

Where will the remaining 1oo billion or so come from for Katrina, and where will the cuts be made to cover a couple of hundred billion more to eliminate the remaining deficit? And remember, as explained here, an increase in taxes of one dollar does not harm those affected by the hurricane any more than a one dollar decrease in government spending.

    Posted by on Saturday, September 17, 2005 at 01:01 AM in Budget Deficit, Economics, Policy | Permalink  TrackBack (1)  Comments (12)

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