Across-the-Board Cuts Needed to Avoid Fiscal Armageddon

Although the Congressional Budget Office has estimated that the federal budget deficit will soar to a peacetime record $1.5 trillion in 2011, President Barack Obama has offered a puny proposal to freeze domestic discretionary spending (excludes huge entitlement programs, such as Medicare, Medicaid, and Social Security) for five years. This proposal sounds much bolder than it is, because domestic discretionary spending accounts for only 12 percent of the federal budget.

That means that 88 percent of the budget, including the sacrosanct entitlements and security spending, will go untouched as the U.S. debt continues to soar. But didn’t Secretary of Defense Bob Gates just announce that he was cutting $78 billion over five years from the Department of Defense’s (DoD) budget? Yes, but only in Orwellian Washington, D.C., is a budget cut actually a budget increase. In reality, to forestall deeper reduction, the cagey Gates offered only to cut planned increases in DoD’s future budgets (excluding funds for the Iraq and Afghanistan wars). Thus, the non-war defense budget will still be increasing from year to year, but at a lower rate than the fictional plan. Clever D.C. pols regularly use such budgetary sleight of hand to dupe the public and periodic citizens’ movements for fiscal responsibility, such as the Tea Party. But occasionally, heroic budget cuts are made.

A similar deficit situation occurred in the early 1990s, when President Bill Clinton had to clean up the mess of Republicans who pioneered fake tax cuts. The Reagan administration invented the fake tax cut that the later George W. Bush administration imitated. If taxes are cut and spending rises (contrary to Reagan’s image as a “limited government conservative,” federal spending as a portion of GDP actually increased during his two terms), the government budget deficit then has to be handled by tax increases, borrowing leading to future tax increases and interest payments, or printing money (Reagan did all three). But images aside, surprisingly, Clinton was the master budget-cutter, being the only president since Harry Truman to actually reduce per capita federal spending. He turned a budget deficit into a surplus.

Then along came Bush the Younger, who made the profligate Reagan look frugal. Bush cut taxes while running two pointless nation-building wars, increasing the defense budget dramatically, and irresponsibly creating the first new major entitlement program since Lyndon Johnson’s Great Society program in the 1960s. Bush piled a prescription drug program for seniors on an already financially sinking Medicare program.

Like Nixon going to China, Democrats, who have the relatively undeserved reputation for fiscal recklessness (since Truman, the actual data show that Democratic presidents have a much better fiscal record than their Republican counterparts), usually find it easier to make budget cuts (probably why their record is better). Yet so far, Obama has been a grave disappointment in this regard. His massive, pork-filled “stimulus” bill – allegedly needed for a Keynesian jump-start to an economy in the doldrums from Bush’s cataclysmic bubble-popping meltdown – merely made Bush’s already monstrous budget deficits worse. And although Obama has overseen a net reduction in U.S. forces at war abroad (withdrawing significant forces from Iraq while more moderately escalating in Afghanistan), these hapless wars continue to drain the treasury and undermine U.S. security by swelling the ranks of Islamist terrorists angry at U.S. occupation of Muslim lands.

One of the main impediments to Obama fulfilling his party’s tradition of relative fiscal responsibility is his seeming belief in Keynesian government pump-priming economics, which has been much criticized in academic circles. He apparently believes government spending cuts will throw the economy back into recession. Yet, Britain and Germany, which are enacting significant budget cuts, still seem to be doing better economically than their European brethren. That is because government fiscal responsibility usually restores business, investor, and consumer confidence.

Obama’s budget didn’t offer any dramatic new proposals to reduce government spending (and even offered some scattered new spending initiatives). To keep with the bipartisan spirit after the Gabrielle Giffords’ assassination attempt and also to avoid partisan fighting over spending priorities, which will bog down and probably eventually kill any significant budget cuts, all government programs should be cut by 15 percent from last year’s budget level, including heretofore sacred defense and entitlement programs. Such reductions could be justified by saying that “we face fiscal Armageddon, and everyone has to sacrifice.”

And this just may be the start of the budget-cutting that eventually will be needed. But the American people would likely perceive an across-the-board cut as fair and, given the country’s near insolvency, accept the extreme need for shared sacrifice.

Author: Ivan Eland

Ivan Eland is a senior fellow at the Independent Institute and author of Recarving Rushmore: Ranking the Presidents on Peace, Prosperity, and Liberty.