Showing the Way On Spending Cuts

ALG Editor’s Note: In the following featured column from RealClearMarkets, Diana Furchgott-Roth makes the case for spending cuts, even if Barack Obama won’t:

By Diana Furchtgott-Roth

WASHINGTON-President Obama’s State of the Union address demonstrated anew that although he pays lip service to smaller government, less regulation, and deficit reduction, his heart is elsewhere.

After two years in office, and despite having taken a “shellacking” in the November election, the president continues to believe in larger government, government as a provider of services, government as an employer not of last resort but of first resort.

The president’s address to the Congress and to the national viewing audience demonstrated that despite the bipartisan seating in the House chamber, and perhaps a less acrimonious atmosphere, the differences between the two parties are as wide as ever. Democrats want to increase government spending, Republicans want to decrease it.

The inadequacy of Mr. Obama’s professed efforts to trim future deficits was underscored the next day by a report from the nonpartisan Congressional Budget Office. Its reappraisal of the budget and economic outlook projected that when fiscal 2011 ends on September 30, the federal deficit for the year will have hit $1.5 trillion ($1,500 billion) a new high equivalent to 9.5 percent of GDP. That’s $400 billion more than the August estimate.

CBO projected that the national unemployment rate, 9.4 percent in December, will have dipped, barely, to 9.2 percent by the end of this calendar year.

Most distressing of all, CBO estimated that if current policies continue, the national debt, the cumulative total of all past budget deficits, will be equal to 100 percent of GDP in 2021, up from about 90 percent in 2020 last September.

Against these projections, Mr. Obama’s proposed spending cuts are trivial. He proposes to freeze annual domestic (nondefense) spending for the next five years. That would reduce the deficit by $400 billion over 10 years. That’s not enough.

Contrast that woefully inadequate approach to the proposed Spending Reduction Act of 2011 unveiled Monday by Representative Jim Jordan of Ohio, chairman of the Republican Study Group (and sponsored in the Senate by South Carolina’s Jim DeMint). This bill would reduce federal spending by $2.5 trillion over 10 years, six times more than Mr. Obama suggested.

In his hour-long oration Tuesday evening, Mr. Obama told the country that in order to remain competitive, America must have more and better infrastructure, and that it has to be provided by the federal government.

After citing the innovations of Thomas Edison, the Wright brothers, Google, and Facebook-all started without government support-Mr. Obama said that under his forthcoming budget for 2012, “we’ll invest in biomedical research, information technology, and especially clean energy technology-an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.”

Mr. Obama’s stated goal is to give 80% of Americans access to high-speed, long-distance rail, which will cost hundreds of billions of dollars. Already, $13 billion has been budgeted; that will barely get any rail systems in place.

How can Republicans trim $2.5 trillion from the budget? Let us count Representative Jordan’s ways.

The bill would replace the spending levels for 2011 authorized in December in a continuing resolution that expires in March with spending at the 2008 levels, for all lines in the budget except defense, homeland security, and veterans. That would save $80 billion just this year.

Then, the bill would cancel unused spending authority in the 2009 stimulus bill, for a savings of $45 billion. The Republican proposal would privatize Fannie Mae and Freddie Mac, saving $30 billion more.

The largest saving comes from a 10-year freeze at 2006 spending levels for nondefense, discretionary budget programs-agriculture, national parks, medical research, waterways, environmental protection, but not for benefits such as food stamps, social security, and Medicare. This would save $2.3 trillion in the years 2012-2021.

Savings would come from cuts in the federal workforce, both in numbers of workers hired and in pay, as was suggested by Professor Paul Light of New York University . The workforce would be reduced by 15% through attrition, with only one worker hired for every two workers who quit or retire. In addition, existing workers would not be given automatic annual pay increases.

Mr. Jordan should be credited with doing the tough work of going through the budget and identifying specific cuts. The bill lists more than 100 programs slated for elimination or reduction.

Unlike Mr. Obama’s plan, transportation is left to the private sector. The bill would cut, annually, $1.56 billion in subsidies for Amtrak, $2.5 billion for intercity and high-speed rail, and $2.5 billion for New Starts Transit. In addition, the federal civilian employee travel budget would be halved, saving $7.5 billion a year.

Many liberal sacred cows would be not just gored, but put down permanently. Who needs the Corporation for Public Broadcasting, with annual subsidies of $445 million, when we have the vast cornucopia of broadcast, cable and Internet offerings? Why do we need the National Endowments for the Arts and the Humanities (together, over $330 million annually in spending) when corporations fund art exhibits and concert series?

International subsidies, such as the International Fund for Ireland and Economic Assistance to Egypt, also get the hatchet, as well as contributions to the Organization for Economic Cooperation and Development and to the Intergovernmental Panel on Climate Change.

There’s no shortage of ways to shrink the federal budget, but so far there seems to be a shortage of will. Judging from CBO’s latest report, that needs to change.

Diana Furchtgott-Roth is a contributing editor of RealClearMarkets, an adjunct fellow at the Manhattan Institute, and a columnist for the Examiner.