We’ve Actually Already Cut a Bunch of Spending

October 3rd, 2012 at 4:31 am

There is a strongly held view—one I’ve contributed to myself—that our dysfunctional federal government cannot accomplish anything useful on the budget front.  To the contrary, they can create recessionary cliffs, i.e., they’re good at creating problems, not solutions.

Well, I spent the morning in a taped discussion with Senator Alan Simpson of the Simpson-Bowles fame (he said his name should go first so as to avoid the unflattering acronym if you go the other way).  One of the points I tried to bring to the discussion—which I’ll post once it’s public—is that we’ve actually made progress, especially from his perspective, on spending cuts in the budget.

These developments are poorly understood by those—most vocally, SB advocates—who continuously inveigh that we’re not “serious” about cutting spending.  In fact, that’s the only thing we’ve been “serious” about so far, such that we’ve actually achieved 70% of the discretionary spending cuts called for in the SB budget plan.  This does not count war savings, nor does it include savings on interest payments, which would add another $250 billion to the savings.

Two recent papers by my CBPP colleague Richard Kogan lay out the story (my bold).

Policymakers and budget experts generally agree on the need to reduce projected deficits and put the federal budget on a sustainable path. They have focused less attention, however, on the amount of deficit reduction that the 112th Congress and the President have enacted. Reductions in funding for discretionary (i.e., non-entitlement) programs enacted last year, primarily in the Budget Control Act, have produced $1.5 trillion in savings in discretionary spending for fiscal years 2013 through 2022. This part of the budget includes defense, international programs, and an array of domestic programs ranging from education to law enforcement, food safety, and environmental protection.

Two-fifths of the $1.5 trillion in savings from cutting and capping funding for discretionary programs comes from defense, while the other three-fifths comes from reductions in domestic and international programs. These reductions will shrink non-defense discretionary spending to its lowest level on record as a share of GDP, with data going back to 1962 (see figure).

I raise this for a few reasons.  First, when people correctly point out that a sustainable budget path requires both spending cuts and tax increases, please point out to them that we have, in fact, already done a bunch of the former.  It’s fairly widely accepted these days that it will take about $4 trillion in cuts over 10 years to stabilize the debt, so we’re about 38% of the way there on spending cuts alone.  It’s new revenue time.

I know—the really “serious” cutters want to see cuts to the big social insurance programs.  Well, the President has those too—remember the $716 billion of Medicare savings targeted at providers that was the rage a few weeks ago (and that Gov. Romney says he’ll restore)?  But what about Social Security?

Look, as I stressed to Sen. Simpson, he and Bowles have done us a service by putting everything on the table.  But you don’t have to show your mettle by whacking the entitlements.  That too should involve balance, a lot more, I’d argue, than we saw in SB re Social Security.

Finally, I’ve said it before and I’ll say it again.  What is so damn great about cutting the heck out of non-defense discretionary spending?  Clearly, we want to evaluate their effectiveness, but in an age of increased inequality and diminished opportunity and mobility among the least advantaged, many of the programs in this category should be expanded (help with college assistance, Head Start, job programs and job training).  Simply cutting for the sake of optics without regard to social need and economic context is not the way forward.

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12 comments in reply to "We’ve Actually Already Cut a Bunch of Spending"

  1. foosion says:

    >> What is so damn great about cutting the heck out of non-defense discretionary spending?>>

    It helps redistribute from the middle class and poor to the best off. What’s not to like 🙁

    We don’t have a deficit problem, we have an employment and growth problem. Cutting the deficit is counterproductive for these problems.

    For the future, our entire deficit problem is a healthcare spending problem. Reduce spending to that of any other country and we’re fine. Note that shifting spending from the government to its citizens does nothing useful (other than redistributing to the best off).

  2. Jim says:

    If you cut benefits for Social Security and Medicare, would you also not have to cut their funding sources since both programs are fully funded for the near future?

  3. readerOfTeaLeaves says:

    One reason for the confusion may be that much of the media conversation tends to occur among legislators (in DC) or ‘experts’ related to finance (a la Bloomberg News).

    If the media interviewed more mayors, school directors, or governors — the people who do the heavy lifting in administering budgets — the cumulative effects of budget cuts would probably be more widely understood, and more visceral.

    It’s one thing to hear that ‘100,000 teacher jobs have been lost…’, but another to learn that in City A, 20% of the elementary school teachers, 15% of the firefighters, and 32% of the public health funding have been lost due to a series of budget cuts…’. The first story is beyond the scale of my own life; the second story ‘hits home’.

    The way that I read Figure 1, we are now funding only about half the discretionary items (in terms of percent of GDP) than we did in 1976.

    Is it conceivable that in a period of 36 years, during which the top 1% began to accumulate ever-growing portions of total wealth, national discretionary spending fell by nearly half (as a percent of GDP)?!

    Did I read that graph correctly…?
    Because if so, that is news to me.
    It appears the only two spikes are due to Katrina and the Stimulus; otherwise, it appears we are abandoning the very idea of government in the public interest, except as reactions to crises.

    I’d love to see Figure 1 data overlaid with data showing key tax code changes, as well as income inequality data across that same x-axis. The graph certainly documents what happens when YOYO ideology runs the show.

  4. bakho says:

    Cutting spending leaves the Middle Class paying for more of the education and health care out of pocket and allows the wealthy to take more than their fair share of our economy which they spend on themselves, vacationing abroad, &c or investing in sweatshops in poor countries.

    The wealthy special interests want to Privatize Social Security because it is a large pot of money and BigF thinks they can skim money from SS into their own pockets.
    The same is true for Privatization of education. The wealthy special interests view it as a way for them to skim money from the rest of us. This is why they disrespect our schools and attack our hard working teachers.

    • Charles says:

      I’m “the rest of us”, and personally, I either am highly offended by your comments, or just have to laugh them off! BIG BAD CORPORATIONS vs. THE LITTLE GUY (or GAL)!!! Come on.. Really?

  5. Michael says:

    Republicans own the House and hate America.

    • Jake says:

      Would it be more accurate to say R’s hate 47% of America? That would be consistent with the fact that they approve of government to subsidize big business and wealth accumulation.

  6. Jake says:

    Revenue should be next as the Bush tax cuts are about 50% of the deficit according to James Fallows. After that will have to be entitlement cuts b/c they are such a large percentage of governmetn spending. But there is time as the increase in interest on the increase in debt is a slow rise because growth and inflation will decrease the defict without policy change. Deficit and debt increase is a long run problem and requires long term policy changes to address but they have to start now.

  7. Widgetmaker says:

    No, no, no! This is not what blogs are for. You are supposed to be scaring the sh*t out of everybody so that they will get emotionally agitated and hooked on your writing. This is too good a story and makes too much sense. How do you expect to get attention in the market place of ideas if you are not shouting dire predictions from the rooftops??? Don’t you know the world is going to end?

    BTW – nice piece. Thanks.

  8. Gilbert Vipraio says:

    While the original post does contain factual information, it is conveniently only partially factual. Yes the government is cutting spending but at the same time it is causing everyone else to spend more on the governments behalf. With the outragious growth in costly regulations, compliance costs have increased from approximately $5,000’per worker in 2007 to over $10,000 per worker today. This is equal to $1,700,000,000,000.00 (1.7 trillion) or 3.6% of our GDP. This cost disproportionately hits small businesses and IS the primary consideration when exporting jobs overseas. These numbers include federal, state and local regulatory costs and if they continue to grow at the current rate, it will colapse our economy. These costs are much higher for manufacturing and where has that gone? At the federal government increases the cost of doing business while passing greater costs to the state which result in increased costs again. Is there any questions why unemployment is >8% and will stay there until our government is friendly to business and grows,the tax base.

  9. Fred Donaldson says:

    Cutting funding for Social Security, Medicare, Medicaid, public schools, food stamps and college tuition loans is cutting funding for things that rich people don’t use or desperately need.

    Cutting funding for defense from foreign “communist” invaders is a good investment for folks with a lot of property to protect from nationalization.

    Continued funding for subsides to business and industry is a good investment because it increase the value of things that rich people own – stocks, bonds and pieces of hedge funds.

    It is dangerous to simplify politics/economics as just greed and self interest, except, when it is just that.