Cut, cap and balance ... simple, until you do the math

By David Post

For the Salisbury Post

OK, all together now ... five, six, seven, eight! Cut, cap and balance!

Got a nice ring to it, huh?

Cut the deficit. Cap total federal spending at 18 percent of gross domestic product. Amend the Constitution to require a balanced budget.

Sounds like a great idea, and the House just passed it.

Let’s look at each of those toe-tappers.

First, cut the deficit. Easy to say. Hard to do. Both houses of Congress have budget committees and are responsible for telling the president what the government can spend. Instead, they blame the president for spending what they authorized him to spend.

It’s true that Congress has not passed a budget in two years. Most people haven’t updated their GPS systems in two years either. A dirty little secret in Washington is that the congressional budget is only a road map. The budget law does not require that authorizing legislation and actual appropriations follow that route.

The new Congress full of budget cutters had trouble finding $50 billion to cut last January. In reality, very little was cut. Money that hadn’t been spent wasn’t spent, and other dollars were pushed into future years.

Look at the 2011budget. Federal income receipts will total almost $2.2 trillion:

(Figures represent billions.)

Individual income tax: $950

Corporate income tax: $200

Social Security: $800

Excise tax (gas, alcohol, tobacco): $75

Customs: $25

Federal reserve: $80

Estate taxes: $15

Other: $20

Total federal income: $2,165

Projected spending by the federal government in 2011 will be approximately $3.8 trillion:

Defense & veterans benefits: $900

Entitlements

Social Security: $750

Medicare: $500

Medicaid, military health care: $400

Federal retirement: $125

Unemployment: $135

Welfare (food and housing): $200

Other safety net spending: $175

General government operations: $325

International assistance: $55

Science & space: $35

Interest on the debt: $200

Total expenditures: $3,800

Do the math: $2.2 trillion in, $3.8 trillion out. Sharpen those pencils and chop $1.6 trillion, or 40 percent of what we spend. Should each of those expenses be cut 40 percent? Or should some be cut and others not?

The public does not want cuts in Social Security and Medicare. With Defense, those three items equal total receipts. Should everything else be eliminated?

Willie Sutton was right. He robbed banks, he said, because “that’s where the money is.” It’s hard to cut the U.S. budget without reducing Social Security, Medicare and Defense. But congressmen who vote to reduce those sacred cows are likely lose their jobs. Even if it’s the right thing to do, it’s a hard vote to cast.

Suppose Democrats signed a pledge to not cut Social Security and Medicare. Since the Republicans have pledged to not raise taxes, that would lock government into a death spiral. Isn’t governing about figuring out what is best for all of us, rather than catering to particular constituencies?

Second, cap, or limit, government spending at 18 percent of GDP. That’s good political hype, but the last time that happened was 1966 when the economy was going great guns (literally). Otherwise, the last time government spending was below 18 percent of GDP was in the 1950s, before Medicare and Medicaid. Do voters want to eliminate Medicare and Medicaid?

Look at spending for the past five presidents as a percentage of GDP: Carter 21.1 percent; Reagan 22.3 percent; George H.W. Bush 21.8 percent; Clinton 19.4 percent; George W. Bush 20.5 percent.

The lowest was, uh, a Democrat, and the highest was, hmmm, Reagan, the great budget cutter. Keep that quiet. It violates conventional wisdom.

If 18 percent is the law, what happens if we have a recession? GDP declines. That would require the government to reduce spending to 18 percent, further reducing unemployment benefits and other government spending in a recession. If across the board cuts were necessary to meet 18 percent, Social Security, Medicare and military spending would be reduced. That would further reduce GDP and so on.

Since the Great Depression, government intervention has softened the pain and helped reverse recessionary downward spirals. Most economists agree that tighter government policies in 1930 caused or worsened the Great Depression. If the laws of economics still work, imposing an 18 percent cap could actually cause another depression. If the laws of economics are suspended, Congress could simply pass a law making recessions illegal.

The third leg of this stool is to amend the Constitution requiring a balanced budget. If that’s so easy, why doesn’t Congress just balance the budget now? Neither party in Washington has offered actual cuts to balance the budget yet.

If you have a plan rather than a platitude, please tell Washington.

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David Post is a co-owner of Salisbury Pharmacy and an adjunct professor at Georgetown University.