by Dick Morris
Only in the Times/liberal fantasy world could an $800 billion spending bill that nearly tripled the federal deficit and a health care law that radically overhauled our entire system be called middle choices between the left and the right. Yet Obama will constantly be featuring such “compromises” in an attempt to sell the notion that he is moving to the center.
For example, he tried to dress up his surrender to the Republicans in agreeing to extend the Bush tax cuts as a “compromise.” It was no compromise. The concession Obama made in extending the Bush tax cuts was a surrender and a rout! There is a big difference between moving to the center as an act of strategy and policy and fleeing to it because you don’t have a choice.
We cannot be fooled!
If the Republicans manage their power well and seek important and specific confrontations with the administration, they can sweep the national elections again in 2012, replacing Obama and adding to their gains in Congress.
The key is to take Obama on, but be smart about how we do it. We need to engage the liberals from well-prepared positions, countering their socialist spending with proposals that enjoy the support of the American people. The GOP will not succeed if it avoids confrontation. Nor will it do well if it confronts the president without a careful eye on public opinion. But well-managed and staged battles, with good strategy and tactics, can stop the economic skid, while at the same time leading to Obama’s defeat in 2012.
HOW TO REDUCE THE DEFICIT WITHOUT RAISING TAXES
Republicans have skated through the 2010 elections with vague promises to rein in spending, but largely have not had to spell out exactly how they plan to do it. Now they will have to walk the walk, having spent the election talking the talk.
Democrats always love to portray budgeting as a zero-sum game where you have to subtract over here in order to add over there. But the reality is totally different. The fact is that subtraction—tax cuts—usually leads to addition, i.e., increased federal revenues.
But any credible plan to reduce and eventually eliminate the deficit must rely on spending cuts as well as economic growth. This is true not just because we want to lower the deficit, but, more important, because we don’t want to ratify the huge federal spending that Obama has enacted whether or not growth makes it possible to afford it. The growth of government under Obama is dangerous for the economy and will lead to a European-like economic strangulation. We must reel it in!
But we also need to reconsider one of the great fictions promulgated by liberals and Democrats: that cuts in government spending hurt the poor. It is true, of course, that when you spend less on social services, you are giving the poor less or reaching fewer of them. But if these cuts reduce the deficit, stimulate economic growth, and let the job market flourish, they will more than make up in employment opportunity and the chances for advancement what they take away in public services. Especially when one considers the heavy component of administrative cost in federal outlays, cutting spending and therefore reducing the deficit do not need to hurt poor people. And even cutting taxes on the rich helps the poor, since the rich account for one-third of all consumer spending in the country. That consumer spending means jobs for poor people!
As President John F. Kennedy said, “A rising tide lifts all boats.”4 And, as Ronald Reagan said, “The best social program is a job.”5
Because of decades of reckless and wasteful government spending, it will be surprisingly easy to cut government down to size. Fortunately, the Americans for Tax Reform, a group led by Grover Norquist and committed to economic growth and no new taxes, has pioneered the work in this field.
Let’s start by understanding the size of the federal deficit now that we have extended the Bush tax cuts permanently and stopped the AMT from eating us alive. (The AMT is the Alternative Minimum Tax, originally passed to make sure rich people pay some taxes despite their shelters and deductions. But, not indexed for inflation, it has reached more and more middle-income taxpayers. The Obama-Republican budget deal on extending the Bush tax cuts stopped the AMT’s growth.)
* * *
THE PROJECTED FEDERAL DEFICIT
(in billions)
Year: 2010
Deficit: $1,342
Year: 2011
Deficit: $1,265
Year: 2012
Deficit: $ 960
Year: 2013
Deficit: $ 885
Year: 2014
Deficit: $ 840
Year: 2015
Deficit: $ 960
Year: 2016
Deficit: $1,091
Year: 2017
Deficit: $1,142
Year: 2018
Deficit: $1,183
Year: 2019
Deficit: $1,318
Year: 2020
Deficit: $1,438
Source: Congressional Budget Office
* * *
We will need sharp cuts in spending and pro-growth tax policies to bring the deficit down.
HOW TO CUT FEDERAL SPENDING
The law requires that Congress pass budgets for the ensuing ten years. While this provision seems to enable long-term planning, it really results in theoretical fights over fanciful numbers in the out years that never really materialize.
When Clinton agreed with the Republicans on a plan to balance the budget in 1997, their goal was to eliminate the deficit by 2005. Instead, economic growth, largely kindled by tax cuts, brought the budget into balance by 1998. So much for forecasts!
Let’s focus on the next three years, when we can reasonably anticipate what economic conditions are likely to be.
As you can see from the tables on the previous page, the deficits for these years are now predicted by the Congressional Budget Office to be:
* * *
2012: $960 billion
2013: $885 billion
2014: $840 billion
* * *
So how can we cut these deficits?
In fact, it won’t be that hard. Democrats and liberals like to sell us a bill of goods telling us that to cut the deficit through spending reductions alone will require huge cuts in Medicare and Social Security. They speak of how hard the sacrifice would be for the average American and for the elderly in particular.
Nonsense. The budget deficit was not primarily caused by increases in Social Security or Medicare and it need not be solved by cuts in those programs. It was caused by increases in welfare, Medicaid, and domestic spending and can be solved by cutting welfare, Medicaid, and domestic spending. You don’t need taxes. You don’t need to cut Social Security. You don’t need to cut Medicare! At least not in the short term.
First, let’s understand what makes up the federal budget. It is divided into two broad categories: mandatory and discretionary.
Mandatory programs includes interest on the federal debt or entitlement programs like Social Security, Medicare, Medicaid, and various forms of welfare like food stamps. Congress does not limit spending on these programs. The budgets it passes each year are really just predictions of how much they will cost, not limitations. In effect, Congress just signs a blank check and authorizes the administrators to pay out benefits to all who qualify.
Discretionary programs are those for which funds are appropriated each year. Spending is limited to the amounts specified by Congress. Budgeteers divide discretionary spending into two categories: defense and nondefense. The nondefense part includes outlays for things like education, transportation, homeland security, public safety, etc.
In FY2009, the budget broke down like this:
* * *
Total Budget: $3,526 billion
* Mandatory: $2,289 billion
* Discretionary: $1,237 billion
* Defense & Intl.: $699 billion
* Nondefense: $538 billion
* * *
We propose the following steps to cut federal spending and the deficit:
HOW TO CUT SPENDING
Roll back discretionary, nondefense spending to 2008 levels and then freeze it there
for three years (through 2014).
Roll back Medicaid to 2008 levels, adding a retroactive 3% annual increase. Then let it rise by only up to 3% each year in the future. Block grant the aid to the states and let them run the programs.
Reduce our troop levels in Iraq and Afghanistan to 60,000 combined by 2015.
Together, these simple steps will cut the deficit to manageable proportions by 2014.
No cuts will be required in Social Security or Medicare and no tax increases will be necessary…or tolerated!
Now let’s go into the details:
The first thing to do is to roll back the huge increase in discretionary nondefense spending with which Obama has saddled our country. Drop it back down to pre-Obama levels.
If we did so, we would save $126 billion in FY2012. In FY2013, we would save an additional $118 billion. In FY2014, we’d save $117 billion.
* * *
SAVINGS FROM FREEZING NONDEFENSE DISCRETIONARY SPENDING AT ’08 LEVELS
Fiscal Year Savings from Freeze
2012: $126 billion
2013: $118 billion
2014: $117 billion
* * *
But we need to go further.
We should transform Medicaid from an entitlement to a block grant to the states, setting an annual amount for each state keyed to the 2008 spending levels plus a factor of 3% for inflation.
States should get the flexibility to administer Medicaid funds as they wish, adjusting benefits and eligibility as needed to make the numbers work.
Unless we impose caps on Medicaid, it will double in nine years. More than any other, this is the entitlement we must rein in.
Such a cap would save $62 billion by 2014.
* * *
BLOCK GRANTING MEDICAID
(allowing 3% annual increase)
Year: 2008
Currently Budgeted: $201 billion (baseline)
Year: 2012
Currently Budgeted: $270
Proposed: $226
Savings: $44
Year: 2013
Currently Budgeted: $283
Proposed: $233
Savings: $50
Year: 2014
Currently Budgeted: $302
Proposed: $240
Savings: $62
* * *
And we propose ratcheting back our troop levels in Iraq and Afghanistan to a total of 60,000 by 2015. If we did that, we would save $72 billion by 2014:
* * *
IMPACT OF CAPPING IRAQ/AFGHAN AT 60,000 TROOPS BY 2015
2011
Savings: $1 billion
2012
Savings: $6
2013
Savings: $34
2014
Savings: $72
* * *
So…by 2014, if we…
a. Freeze nondefense discretionary spending at 2008 levels for three years
b. Block grant Medicaid and limit its increase to 3% a year
c. Cut troop levels in Iraq/Afghanistan to 60,000
…we would cut the deficit by $251 billion by 2014, bringing it down to $589 billion, or 3.4% of GDP.
Economists feel that a 3% deficit is desirable. They call deficits at that level “primary balance.” It is the standard set by the European Union for its members—even though it is hardly ever met—and it is a good yardstick for us. A deficit of 3.4% would bring us back to the levels of the Reagan years. In his eight years as president, the deficit averaged 3.9% of our GDP.
* * *
BUDGET DEFICITS UNDER REAGAN
Year: 1981
% of GDP: 2.5%
Year: 1982
% of GDP: 3.9%
Year: 1983
% of GDP: 5.9%
Year: 1984
% of GDP: 4.7%
Year: 1985
% of GDP: 5.0%
Year: 1986
% of GDP: 3.2%
Year: 1987
% of GDP: 3.0%
Year: 1988
% of GDP: 2.8%
Source: U.S. Government6
* * *
And this could be done without cutting the defense budget, Social Security, or Medicare and while extending the Bush tax cuts!
What programs would be cut? Here’s a partial list. As you can see, nothing proposed here will bring down the republic!
Highways Three-quarters of the money we spend on highways is for new roads. Only one-quarter is for maintenance and enhanced safety on existing roads. We could do without any new roads for the next three years.
Three-year savings: $90 billion.7
Climate Research and Energy We spend $2 billion a year on climate research and another $2 billion annually on “innovative technology” loan guarantees and renewable energy supply programs.8 Eliminate them.
Three-year savings: $12 billion.
Federal Aviation Administration We could save $3.6 billion a year (about 20% of the FAA budget) by making passengers and airlines pay for improvements to local airports, rather than burden the taxpayers with the cost.
Three-year savings: $10.8 billion.9
National Institutes of Health Cut their grants by 10% and save $2.4 billion a year. This would eliminate about 5,000 grants a year. Let the bureaucrats do some prioritizing!
Three-year savings: $7.2 billion.10
Federal Land We should sell off a lot of the land Washington owns, but, until we do, we should make grazing fees equal the cost of operating the bureau, saving taxpayers $1.1 billion a year.
Three-year savings: $3.3 billion.11
Congress Roll back the cost of Congress to 2008 levels and save $500 million a year. They don’t deserve a raise.
Three-year savings: $1.5 billion.12
Forests and Fish Cut spending for the Forest Service, Fish and Wildlife Service, and so forth, in half. Save $4.3 billion a year.
Three-year savings: $12.9 billion.13
Army Corps of Engineers 15% cut in Army Corps of Engineers civil projects would save $700 million a year.
Three-year savings: $2.1 billion.14
Diplomacy 20% cut in our diplomatic missions and foreign service staff. Save $2.5 billion a year.
Three-year savings: $7.5 billion.15
Pork The National Infrastructure Innovation and Finance Fund is an Obama pork creation. Eliminate that and save $4 billion a year.16 Build America Bonds is another Obama brainchild that needs to be repealed. Up to now, all state and local bonds were guaranteed by their governments, which paid back the interest and principal out of local revenues. Obama is now picking up the tab to the tune of $11.5 billion a year. Eliminate the program entirely.
Three-year savings: $46.5 billion.17
Agriculture We now spend about $15 billion a year on agricultural subsidies. According to the Cato Institute, the largest 10% of America’s farms get almost three-quarters of the money. We also spend about $4 billion annually on agricultural research. Cut this spending in half.
Three-year savings: $28.5 billion.18
Pensions Federal pensions are all indexed for cost of living adjustments based on the rate of wage inflation. Changing it to price inflation would save $3.5 billion.
Three-year savings: $10.5 billion.19
Scholarships Obama wants to make Pell Grants into entitlements. Right now they are discretionary. That means that anyone who qualifies can get one and Congress will have no control over how much it costs. Bad idea. What we don’t need now is a new federal entitlement. We should keep it discretionary. We should cut the spending level Obama proposes by 9% in 2015, saving $3.7 billion a year.
Three-year savings: $11.1 billion.20
State Aid Grants to states for rehabilitative services and disability research are another Obama giveaway to help bail them out of their fiscal problems. Cut it out and save $3.3 billion a year.
Three-year savings: $9.9 billion.21
Education Research Cut it by $1.2 billion.
Three-year savings: $3.6 billion.22
Corporation for Public Broadcasting Elim
inate this left-wing media subsidy. Save $500 million.
Three-year savings: $1.5 billion.23
National Endowments for Arts and Humanities. Eliminate them. Let the private sector and charities pick up the slack. If we kill Obama’s proposal to cut back deductions for charitable contributions, it will help. Save $500 million a year.
Three-year savings: $1.5 billion.24
Department of Education Cut out Obama’s proposed increases and save $7 billion a year.
Three-year savings: $21 billion.25
Environmental Protection Agency A 10% cut would save $1 billion annually.
Three-year savings: $3 billion.26
Special Aid to District of Columbia Why not eliminate it and just give them the aid we give to all the states? Save $700 million a year.
Three-year savings: $2.1 billion.27
Corporation for National and Community Service A Clinton-era campaign promise we can’t afford. Eliminating it would save $2.3 billion annually.
Three-year savings: $6.9 billion.28
Housing Assistance Obama plans to spend $47 billion on housing aid, the bulk of it—$41 billion—on Section 8 rent subsidies. We should make no new Section 8 commitments, saving $5 billion annually.
Three-year savings: $15 billion.29
Federal Pay Obama finally got the voters’ hint and announced, in December 2010—two years too late—that he would freeze federal salaries. We have got to adjust federal pay to bring it into line with the private sector. The American Enterprise Institute and the Heritage Foundation have estimated that federal employees earn $14,000 a year more in pay and benefits than their private sector counterparts—a disparity of 30–40%.
The new government in the United Kingdom, headed by Conservative David Cameron, has frozen the salaries of the top 72% of government employees. We should follow that example until private sector incomes catch up.