June 02, 2004, 8:43 a.m.
Budget Busters
How to balance the federal budget in less than an hour.

Both President Bush and John Kerry say they want to cut the $478 billion federal budget deficit in half over the next five years. That's a worthy goal, but it raises an obvious question: Why not eliminate the whole darn thing?

So I called my friend Stephen Slivinski at the Cato Institute. He invited me to drop by and discuss the matter with him and Chris Edwards.

Steve is Cato's "director of budget studies" and Chris is its "director of fiscal policy studies." What's the difference? They're not sure either. Titles aside, they're two of the smartest budget/fiscal-policy guys in Washington. Sitting around a table with them to figure out how Congress might get rid of a half-trillion-dollar deficit sounded like a good idea — and maybe even an important public service, if we came up with a creative solution to one of the federal government's most intractable problems.

It took us most of an hour, but we did it.

Okay, that's an exaggeration. Chris actually had done all of the work beforehand — it may be found in Cato's brand-new policy paper, "Downsizing the Federal Government." He shared a pre-publication copy with me and we reviewed his recommendations. My contribution to our deliberations mostly involved nodding my head in thoughtful agreement.

It turns out that increased revenues probably will eliminate a big chunk of the $478 billion deficit by 2009. About a third of the deficit will just vanish by itself, like magic. Presto! We don't have to do a thing, except keep the economy humming.

Suddenly, the Bush-Kerry rhetoric about cutting the budget deficit in half seemed less than bold.

"Neither one of them has a real plan," explains Edwards. "They both propose to hold down spending and wait for the revenues to catch up."

The Cato Institute, of course, does have a real plan — and it would slash $300 billion in spending without touching defense appropriations or homeland security outlays (with the exception of privatizing the Transportation Security Administration and a few other small-bore reforms). It would even make the Bush tax cuts permanent. And in five years, the government would be back in surplus, which means it would be much easier to pass another round of tax reductions.

So how hard is it to find $300 billion to trim? Not so tough, if you follow the Cato methodology.

"We took a structural view of the problem," says Edwards. "We decided that there are several categories of unnecessary spending. A lot of it is simply wasteful, which we defined as all things the General Accounting Office or other auditors have described as fraudulent, duplicative, obsolete, mismanaged, or ineffective. We also looked for cases of federal spending that represent unjustified redistribution, damage the economy, perform a state or local function, or should be privatized."

So what agency or program carries the biggest bulls-eye in the entire federal budget?

"I'd have to say it's the Community Development Block Grants in the Department of Housing and Urban Development," says Edwards.

From the report:

Cutting the CDBG program would be perhaps the single best cut to make in the budget. The activities it supports are of purely state, local, and private concern.... Many CDBG projects are of dubious value and others subsidize businesses. For example, CDBG money has been spent on revitalizing shopping malls in California and building parking lots in New York.

The CDBG program was instituted to aid low-income regions, but a substantial share of the spending goes to wealthy jurisdictions. For example, Greenwich, Conn., receives five times more funding per low-income resident than Camden, N.J. Greenwich has a per-capita income six times higher than Camden's. Recent budgets have continued to shift funding from poorer to wealthier communities. The program has been rated "ineffective" by the OMB due to its "lack of clarity" and "weak targeting of funds."

Savings: Nearly $6 billion.

When it comes to wasteful spending, the federal budget is a target-rich environment. Here's what the Cato report says about Air Traffic Control:

The Bush administration supports making the Federal Aviation Administration's ATC system more business-oriented, but the ATC system should be fully privatized. A privatized system would likely improve safety, cut costs, and allow access to private capital for infrastructure upgrading. The sooner major reforms are implemented, the better because operational safety under the current government system has actually worsened in recent years.

The United States lags behind other major nations on ATC reform. During the past 15 years, more than a dozen countries have partly or fully privatized ATC. ... Privatized ATC can help reduce congestion, save taxpayer money, and provide Americans with greater safety by speeding the adoption of new technologies.

Savings: $2.8 billion.

This sort of analysis goes on for pages and pages. As the late senator Everett Dirksen once said: a billion here, a billion there, and pretty soon you're talking serious money.

Edwards and Slivinski aren't afraid to go after sacred cows, like the Department of Education (gone!), Head Start (gone!), and farm subsidies (gone!). They also ax medical research, Amtrak, the Post Office, NASA, the National Endowment for the Arts, the National Endowment for the Humanities, the Peace Corps, the Small Business Administration, and TANF (i.e. welfare for "needy families").

I asked why USDA's food-stamp program wasn't on the hit list, thinking it would an irresistible target for Cato's budget hackers. "We decided to stop once we got to savings of $300 billion, because that would be enough to balance the budget," says Edwards. "You don't have to eliminate everything."

He paused for a moment. "You know, we could make a case for even more cuts."

I assured him this wouldn't be necessary. It will be hard enough convincing congressional appropriators to consider zeroing out even a single program named in the Cato report, let alone the whole $300-billion caboodle.

Edwards and Slivinski certainly understand this. They may work at the Cato Institute, but that doesn't mean they live in libertarian la-la land.

"I'll admit to spending my days in a bubble called a think tank," says Slivinski. "But we recognize that eliminating any government spending program is tremendously difficult because each one has a political constituency."

So he has a modest proposal — an idea several Republicans, such as retired senator Connie Mack of Florida, used to kick around. "Congress could set up a special commission, just like it did when everybody knew that we needed to close a number of military bases," says Slivinski. "The secret is to put together a large package of budget cuts and schedule and up-or-down vote on them. That's how you start reducing the size of the federal government — and start saving taxpayer dollars."

The new Cato report doesn't discuss such tactics. For that, you've got to read an old Cato report, from 2001, written by one Stephen Slivinski. See pages 14 through 16. Then write your congressman.

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