28 September 2010

Realistic Spending Cuts

So there's an insane budget problem in the States. That's no secret. This budget problem comes from a drop in revenue caused by a recession and a set of big tax cuts, as well as the spending of two wars and a set of entitlements (Social Security, Medicare, etc.) as well as health costs.

Everyone wants to solve this big budget problem - or at least wants to be seen trying to solve it, while still making everyone happy. But the problem is that this is hard to do. The GOP has been keeping it vague, even though their Pledge to America promises to "repair our economy." The Democrats have made some tentative motions to tackle the problem, most notably by trying to reform health insurance to stop at least that one section from spiraling out of control in the future.

But would an actual serious adult - imagine some sort of Platonic wise autocrat - go about balancing our budget by 2015? What are some examples of the kinds of cuts that are necessary to close a gap of billions and keep it closed?

Well, I don't know. But the Center for American Progress has some very smart people (Michael Ettlinger and Michael Linden) who threw together some numbers. Their report is called "A Thousand Cuts," and it is grim reading.

Their goal is a good one: outline some possible scenarios.

The purpose of this report is to examine what spending cuts could look like under several scenarios for hitting a deficit target of primary balance in 2015: either all through spending cuts, two-thirds through spending cuts, half through spending cuts, or one-third through spending cuts. Tax increases would have to make up the difference for those plans that don’t hit the target entirely through spending cuts— although we leave to another day detailing what such tax hikes might look like.
The cuts we identify are not chosen to scare, but represent a sincere effort to minimize the harm that would be done. Our goal is, to the extent possible, to preserve necessary spending that promotes economic growth, protects the most vulnerable, keeps the country safe, and fulfills our national obligations. But that isn’t easy. The truth is that, contrary to popular wisdom, most federal government dollars go to good and popular things.
Our deficit reduction target is $255 billion in 2015. This is the amount by which the deficit would have to be reduced in 2015, relative to the president’s current budget plan for that year, to bring the budget into “primary balance.” Primary balance is when total government revenues are equal to total government spending, with the exception of interest on the debt. A budget in primary balance means that all government services, benefits, and programs are paid for and require no additional borrowing to support.

So what did they come up with? Let's look at the half-spending plan: the plan that cuts $128 billion in spending, which would leave politicians to raise another $128 billion in tax revenue. What might some cuts look like that try to maintain our country's vital services and minimize harm?

Well, I excerpted it to the right.  Among the splashier casualties, you can see that it includes a 7% cut to defense spending, a 55% cut to agriculture subsidies, a 30% cut to the Universal Service Fund (telecommunications for rural areas and schools), an elimination of all kinds of tax breaks, a 10% cut to the Federal Highway Administration, a 19% cut to the FAA, and a full 33% cut to the Bureau of Land Management.

I am not an expert, but I can see one serious problem: we're still just crawling out of a recession, and one of the best ways anyone ever gets out of a recession (at least at a time when the Fed has interest rates already at rock-bottom) is by putting money into infrastructure building to provide direct jobs now and indirect jobs later.  A guy with a shovel builds the road and in ten years a guy with a truck drives down it. But here we're making some big, big cuts in infrastructure programs.  And even more to this point, the report essentially recommends achieving these cuts by having the FHA devote itself to maintenance rather than expansion.

Naturally, a few things make me smile.  I hate agriculture subsidies in general, and seeing those get slashed would give me a nice warm feeling.  But a lot of these things are truly painful cuts.  The authors admit as much, concluding their paper:

Well, that was miserable.

Perhaps there were moments of joy for you when some particular cut struck a chord, or dealt with a long-disliked program. Maybe you’re a pacifist and reducing the number of men and women in arms and cuting down weapon systems is deeply satisfying. Or perhaps you think that highways ought to be paid for by local governments that put tolls on them or that we spend too much on health research.

But it’s evident that cuts of the scope and magnitude we have laid out really will do harm to the country, especially for the plans that cut the most. They are cuts that we’ll end up paying for one way or another. We may pay for them in delays at the airport or in the emergence of a new disease without a cure. It may cost us in traffic jams and rough roads or in unsafe food. It may mean lower economic growth as the infrastructure crumbles, education suffers, and investments in research and the technologies of the future languish. Or our armed services may be late-arriving at an international hotspot. Whatever the consequences, and you can go through the list and imagine them, there will be some. And as bad as the consequences might be from what we’ve outlined here, the consequences from the alternatives we considered were, in our view, worse.

But these are, in fact, the kinds of choices we’re going to have to make. Are we going to cut or are we going to raise taxes? What cuts? What taxes? These plans are not designed to shock. It’s just what you end up with when you go through the process of actually identifying what would have to be cut. The work ahead over the coming years as we seek to address the unsustainable deficits of our future, once the economy is back on solid ground, will entail these sorts of tough decisions of what to cut, what to tax, and how much of each.

Wise words. Eventually, my generation will have to pay for what the Baby Boomers have bought.

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