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Friday, September 18, 2009

"We Can't Cut Spending"

Bruce Bartlett says Republicans are unrealistic about the ability to solve our budget problems by cutting spending. He is saying, implicitly, that tax increases cannot be avoided:

We Can't Cut Spending, by Bruce Bartlett, Commentary, Forbes: 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. ...
Direct presidential control over spending is extremely limited. ... Even if the president's party controls Congress by a wide margin--as is the case today--getting agreement even on popular measures, such as expanding health coverage, is very, very difficult, as we are seeing. ... Therefore, it is simply stupid and a waste of time to say that massive budget cuts are the answer to our problem without taking account of inevitable congressional resistance. ...
Devising a package of budget cuts large enough to prevent national bankruptcy must also deal with other realities that make them almost impossible to achieve. These include the changing nature of the federal budget and the changing composition of the population.
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.
Looking at last year's budget, only 38% was classified as discretionary; that is, under Congress's control... 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.
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. Unfortunately, the ranks of the elderly are rising. ... Furthermore, the elderly are a rising portion of the electorate. ...
When I raised these facts with a prominent Republican recently he recounted 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.) ...
In short, there is no evidence that it is politically possible to cut spending enough to make more than a trivial difference in our nation's fiscal problems. The votes aren't there and never will be. Those who continue to insist otherwise are living in a dream world and deserve no attention from serious people.

Cutting Medicare cost growth through eliminating administrative waste, unnecessary procedures, non-competitive prices, etc. does not reduce benefits, but that distinction is not made above (and has been lost in the public debate). Let's get the waste out of the system first and then evaluate whether benefits are sustainable. Also, is military spending really untouchable? Are there no potential savings at all in this area of the budget?

I'm curious. Keeping in mind that a cut in a growth rate is different from a cut in the level of services, do you think cuts in Medicare benefits are inevitable?

    Posted by on Friday, September 18, 2009 at 11:04 AM in Budget Deficit, Economics | Permalink  Comments (64)


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